Compact Appliances Uses a Standard Part in the Manufacture of Several

question 121

Multiple Choice

Compact Appliances uses a standard part in the manufacture of several of its radios.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. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $12,000 profit.If Compact Appliances makes the part,what will its operating income be?

• A)$68,000 greater than if the company bought the part
• B)$68,000 less than if the company bought the part
• C)$178,000 greater than if the company bought the part
• D)$92,000 greater than if the company bought the part

---

Definitions:

Nominal Variables

Variables measured in monetary terms without adjusting for inflation, reflecting current prices.

Hyperinflations

Extremely high and typically accelerating inflation rates, drastically eroding the real value of the local currency.

Real GDP

The market value of all final goods and services produced within a country in a year, adjusted for inflation.

Physical Units

Measurements or quantities of items not based on value or price but on physical count or volume.