Part Z45 Is a Part Used in the Production of Blenders

question 97

Multiple Choice

Part Z45 is a part used in the production of blenders at Andrew Corporation.The following costs and data relate to the production of Part Z45: $$\begin{array} { | l | c c | } \hline \text { Number of parts produced annually } & & 20,000 \\\hline \text { Fixed costs } & \$ & 40,000 \\\hline \text { Variable costs } & \mathbf { \$ } & 66,000 \\\hline \text { Total cost to produce } & \$ & 106,000 \\\hline\end{array}$$ Andrew Corporation can purchase the part from an outside supplier for $4.25 per unit.If they purchase from the outside supplier,40% of the fixed costs would be avoided.
- If Andrew Corporation makes the part,how much will its operating income be?

• A)$3,000 greater than if the company bought the part
• B)$24,000 greater than if the company bought the part
• C)$35,000 greater than if the company bought the part
• D)$45,000 less than if the company bought the part

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Definitions:

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