DC Electronics uses a standard part in the manufacture of several of its radios. The 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. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can earn profit of $11,600. If DC outsources, what will the effect on operating income be?

Question

Quizplus · Accepted Answer

B) Calculations:
$2.50 × 30,000 = $75,000
$57,000 × 70% = $39,900
$75,000 + $39,900 - $11,600 = $103,300
$103,300 - $90,000 = $13,300

DC Electronics Uses a Standard Part in the Manufacture of Several