DC Electronics uses a standard part in the manufacture of several of its radios. The total cost of producing 30,000 parts is $90,000, which includes fixed costs of $33,000 and variable costs of $57,000. The company can buy the part from an outside supplier for $2.50 per unit, and avoid 30% of the fixed costs.
If DC Electronics decides to outsource the production of the part, how will it impact operating income?

Question

Quizplus · Accepted Answer

B) Calculations:
$2.50 × 30,000 = $75,000
$57,000 × 70% = $39,900
$75,000 + $39,900 = $114,900
$114,900 - $90,000 = $24,900

DC Electronics Uses a Standard Part in the Manufacture of Several