Harvey Automobiles Uses a Standard Part in the Manufacture of Several

question 83

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.By outsourcing the part,the company can avoid 30% of the fixed costs.
If Harvey Automobiles buys the part,what is the most Harvey Automobiles can spend per unit so that operating income equals the operating income from making the part?

• A)$1.30
• B)$1.95
• C)$4.05
• D)$2.33

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Definitions:

Understatement

The act of reporting less income or fewer assets than actually exist, often resulting in a lower tax liability but potentially leading to penalties if deliberate.

Fraud

An intentional deception made for personal gain or to damage another individual.

25%

A rate or portion equal to one fourth or 25 out of 100 parts in a given context, often related to taxes, discounts, or interest rates.

Tax Liability

The total amount of tax owed by an individual or entity to the tax authorities.