Value Electronics uses a standard part in the manufacture of different types of radios.The total cost of producing 24,000 parts is $90,000,which includes fixed costs of $30,000 and variable costs of $60,000.The company can buy this part from an external supplier for $5 per unit and avoid 10% of the fixed costs.If Value Electronics decides to outsource the production of the part,how will it impact its operating income?

Question

Quizplus · Accepted Answer

If Value Electronics decides to outsource, it will spend $5 per unit for 24,000 parts, totaling $120,000. They can avoid 10% of the fixed costs ($3,000), so their total costs would be $117,000 compared to the original $90,000, decreasing operating income by $27,000, not $57,000 or $60,000 as stated in the options. However, given the options provided and the mistake in calculation, the closest correct choice based on the logic of outsourcing increasing costs would be to decrease operating income, but none of the values correctly match the calculated impact.

Value Electronics Uses a Standard Part in the Manufacture of Different