Harvey Automobiles Uses a Standard Part in the Manufacture of Several

question 229

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.
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 $12,000 profit.If Harvey Automobiles makes the part,what will its operating income be?

• A)$54,000 greater than if the company bought the part
• B)$30,000 less than if the company bought the part
• C)$30,000 greater than if the company bought the part
• D)$150,000 greater than if the company bought the part

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