Harvey Automobiles Uses a Standard Part in the Manufacture of Several

question 124

Multiple Choice

Harvey Automobiles uses a standard part in the manufacture of several of its trucks.The cost of producing 40,000 parts is $120,000,which includes fixed costs of $60,000 and variable costs of $60,000.The company can buy the part from an outside supplier for $3.00 per unit,and avoid 30% of the fixed costs.
If Harvey Automobiles makes the part,how much will its operating income be?

• A)$42,000 greater than if the company bought the part
• B)$42,000 less than if the company bought the part
• C)$78,000 greater than if the company bought the part
• D)$78,000 less than if the company bought the part

---

Definitions:

Willingness-To-Pay

The maximum amount an individual is ready to spend to purchase a good or service or to avoid something undesirable.

Marginal Cost

The price required to create another unit of a good or service.

Advertising Elasticity of Demand

The responsiveness of the quantity demanded of a good to a change in the amount of advertising for that good.

Marginal Cost of Production

The change in total production costs that comes from making or producing one additional item.