Use the Information Below to Answer the Following Question(s)

question 13

Multiple Choice

Use the information below to answer the following question(s) :
Compact Appliances uses a standard part in the manufacture of several of its air conditioners. The cost of producing 40,000 parts is $110,000, which includes fixed costs of $50,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $4.00 per unit, and avoid 40% of the fixed costs.
-If Compact Appliances makes the part, how much will its operating income be?

• A) $30,000 greater than if the company bought the part
• B) $80,000 greater than if the company bought the part
• C) $20,000 greater than if the company bought the part
• D) $120,000 greater than if the company bought the part

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Definitions:

Marginal Cost

The additional expense incurred when one more unit of a product or service is created.

Average Total Cost

The total cost divided by the quantity of output produced, representing the per-unit cost of production.

Economic Losses

Financial losses incurred by businesses or the economy as a whole, often as a result of unfavorable market conditions.