Fair Engineering Company Manufactures Part QE767 Used in Several of Its

question 87

Multiple Choice

Fair Engineering Company manufactures part QE767 used in several of its engine models. Monthly production costs for 10,000 units are as follows:
It is estimated that 20% of the fixed support costs assigned to part QE767 will no longer be incurred if the company purchases the part from the outside supplier. Fair Engineering Company has the option of purchasing the part from an outside supplier at $16 per unit.
-If Fair Engineering Company purchases 10,000 QE767 parts from the outside supplier per month,then its monthly operating income will:

• A)decrease by $2,000.
• B)increase by $30,000.
• C)decrease by $16,000.
• D)decrease by $58,000.

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Definitions:

Comparative Advantage

The ability of a country or entity to produce a good or offer a service at a lower opportunity cost than competitors, facilitating specialized trade benefits.

Production Data

Information and statistics related to the amount and types of goods and services produced within a particular period.

Quotas and Tariffs

Quotas and tariffs are trade policies where quotas limit the quantity of goods that can be imported, and tariffs are taxes imposed on imported goods to make them more expensive.

Foreign Governments

The governing bodies or authoritative administrations of countries other than one's own.