Valuable Electronics Uses a Standard Part in the Manufacture of Different

question 6

Multiple Choice

Valuable Electronics uses a standard part in the manufacture of different types of radios manufactured by it.The total cost of producing 30,000 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 $2 per unit,and avoid 30% of the fixed costs.Assume that free factory space can be used to manufacture another product that can earn profit of $15,000.If Valuable outsources,what will be the effect on operating profit?

• A) decrease of $30,000
• B) decrease of $15,000
• C) increase of $15,000
• D) increase of $30,000

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Definitions:

Expected Value

The weighted average of all possible values that a random variable can take on, weighted by the probabilities of those values.

Payoffs

The outcomes or returns of a decision or action, often expressed in terms of profit or loss.

Risky Undertaking

An action or venture involving a high degree of uncertainty and potential for loss or failure.

Net Profit

The amount of money that remains from revenues after all expenses, taxes, and costs have been subtracted.