Valuable Electronics Uses a Standard Part in the Manufacture of Different

question 6

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. If Valuable Electronics decides to outsource the production of the part, how will it impact its operating income?

• A)increase of $12,000
• B)decrease of $12,000
• C)increase of $20,000
• D)decrease of $20,000

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Definitions:

Ethical Issue

A problem or situation that requires a person or organization to choose between alternatives that must be evaluated as right (ethical) or wrong (unethical).

Early Majority

A segment of consumers in the technology adoption lifecycle that adopts new products after a cautious review, following the innovators and early adopters.

Product Design

The process of envisioning and planning the creation of objects, systems, or services that solve specific problems or meet particular needs.

Test Marketing

A strategy used by companies to evaluate the viability of a new product or service in a smaller, controlled market before a wider release.