Valuable Electronics Uses a Standard Part in the Manufacture of Different

question 131

Multiple Choice

Valuable Electronics uses a standard part in the manufacture of different types of radios.The total cost of producing 42,000 parts is $100,000,which includes fixed costs of $40,000 and variable costs of $60,000.The company can buy the part from an outside supplier for $1 per unit and avoid 20% of the fixed costs.Assume that the company can use the freed manufacturing space to make another product that can earn a profit of $16,000.If Valuable outsources,what will be the effect on operating income?

• A)increase of $42,000
• B)decrease of $42,000
• C)decrease of $8,000
• D)increase of $16,000

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Definitions:

"What-If" Scenarios

"What-If" Scenarios are analytical techniques used to understand the potential outcomes of different actions in decision-making processes.

Economic Order Quantity

A formula used to determine the optimal quantity of inventory to order that minimizes total inventory costs.

Inventory Level

The quantity of goods, materials, or products that are held by a company at a given time, used to meet demand without incurring excess or shortage.

Fixed Quantity Inventory

A replenishment strategy for inventory management where a constant quantity of an item is ordered whenever stock falls to a predetermined level.