Part P40 Is a Part Used in the Production of Air

question 250

Multiple Choice

Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate to the production of Part P40: Jackson Corporation can purchase the part from an outside supplier for $4.25 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $2,000 profit. If Jackson Corporation makes the part, what will its operating income be?

• A)$5,500 less than if the company bought the part
• B)$5,500 greater than if the company bought the part
• C)9,500 greater than if the company bought the part
• D)$111,500 greater than if the company bought the part

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Definitions:

Securities Act

A 1933 United States law that regulates the sale of securities to the public, requiring transparency to help prevent fraud.

Market Capitalization

The total market value of a company's outstanding shares of stock, calculated by multiplying the stock's price by the total number of shares.

Compliance Costs

Expenses incurred by businesses or individuals to meet legal requirements or regulatory standards.

Securities Exchange Act

A U.S. law governing the trading of securities, such as stocks and bonds, to provide protection for investors.