Ring Company makes telephones.Currently, Ring makes all components of the telephones in-house.An outside company has offered to supply one component, part number X76, for $12 each.Ring uses 22,000 of these components per year.Costs of X76 are as follows:

Suppose that 30% of the fixed overhead is avoidable if part X76 is not made by Ring.Should Ring purchase the part from the outside supplier?
A) No, income will decrease by $71,500.
B) No, income will decrease by $15,000.
C) Yes, income will increase by $74,500.
D) No, income will decrease by $10,500.
E) Yes, income will increase by $10,500.

Question

Ring Company makes telephones.Currently, Ring makes all components of the telephones in-house.An outside company has offered to supply one component, part number X76, for $12 each.Ring uses 22,000 of these components per year.Costs of X76 are as follows:​ ​
​
 Suppose that 30% of the fixed overhead is avoidable if part X76 is not made by Ring.Should Ring purchase the part from the outside supplier?
A) No, income will decrease by $71,500. 
B) No, income will decrease by $15,000. 
C) Yes, income will increase by $74,500. 
D) No, income will decrease by $10,500. 
E) Yes, income will increase by $10,500.

Quizplus · Accepted Answer

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Ring Company Makes Telephones