Cuyahoga Valley Bicycles uses a standard part in the manufacture of several of its bikes.The cost of producing 40,000 parts is $138,000,which includes fixed costs of $68,000 and variable costs of $70,000.By outsourcing the part,the company can avoid 30% of the fixed costs.
If Cuyahoga Valley Bicycles buys the part,what is the most Cuyahoga Valley Bicycles can spend per unit so that operating income equals the operating income from making the part?

Question

Quizplus · Accepted Answer

B)
Cost to Build
Variable Costs $70,000
Fixed Costs 68,000
Total $138,000
Less Unavoidable Fixed Cost 47,600
Adjusted Cost of part 90,400 Divided by 40,000 = $2.26

Cuyahoga Valley Bicycles Uses a Standard Part in the Manufacture