Valuable Electronics Uses a Standard Part in the Manufacture of Different

question 146

Multiple Choice

Valuable Electronics uses a standard part in the manufacture of different types of radios manufactured by it The total cost of producing 25,000 parts is $95,000, which includes fixed costs of $40,000 and variable costs of $55,000. The company can buy the part from an outside supplier for $3 per unit, and avoid 20% of the fixed costs. Assume that free factory space can be used to manufacture another product that can earn profit of $15,000. If Valuable outsources, what will be the effect on operating income?

• A)increase of $3,000
• B)decrease of $12,000
• C)decrease of $8,000
• D)increase of $5,000

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Definitions:

Manufacturer Orders

Requests or purchase orders placed by businesses to manufacturers for the production and supply of goods.

Milk Run

A routing strategy where a single transportation vehicle visits multiple locations on a predefined route to pick up or deliver goods, maximizing efficiency and reducing transportation costs.

Truckload Shipment

The transportation of goods where the quantity is sufficient to fill an entire truck, maximizing the vehicle's cargo capacity.

Less Than Truckload

A shipping method for transporting small freight loads that do not require the full space of a truck.