Voltaic Electronics Uses a Standard Part in the Manufacture of Different

question 177

Multiple Choice

Voltaic Electronics uses a standard part in the manufacture of different types of radios.The total cost of producing 35,000 parts is $105,000,which includes fixed costs of $50,000 and variable costs of $55,000.The company can buy the part from an outside supplier for $2 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 Voltaic outsources,what will be the effect on operating income?

• A) increase of $11,000
• B) decrease of $11,000
• C) decrease of $10,000
• D) increase of $16,000

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Definitions:

Administrative Expenses

Overhead expenses not directly attributable to specific business operations, such as salaries of senior executives.

Periodic Inventory System

A method of inventory valuation that requires a physical count to determine the end-of-period inventory and cost of goods sold.

Gross Profit

The difference between revenue and the cost of goods sold, indicating the financial health and performance of a business.

Freight In

The cost associated with transporting goods from suppliers to the buyer, which is added to the cost of inventory.