DC Electronics Uses a Standard Part in the Manufacture of Several

question 32

Multiple Choice

DC Electronics uses a standard part in the manufacture of several of its radios. The cost of producing 30,000 parts is $90,000, which includes fixed costs of $33,000 and variable costs of $57,000. The company can buy the part from an outside supplier for $2.50 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 earn profit of $11,600. If DC outsources, what will the effect on operating income be?

• A) Up $15,000
• B) Down $13,300
• C) Down $24,900
• D) Up $3,400

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Definitions:

Ratification Manifest

The overt expression or demonstration of approval or confirmation of an act or agreement, often legally required for ratification.

Material Facts

Information that could influence the decision-making process of a person or entity, considered significant in the context of legal and financial transactions.

Apparent Authority

A legal doctrine allowing a third party to rely on the representation of an agent that they have the authority to act on behalf of a principal, even if the agent lacks actual authority.

Actual Authority

The explicit power granted by a principal to an agent to conduct specific transactions or activities on the principal's behalf.