Valuable Electronics Uses a Standard Part in the Manufacture of Different

question 49

Multiple Choice

Valuable Electronics uses a standard part in the manufacture of different types of radios manufactured by it.The total cost of producing 25,000 parts is $95,000,which includes fixed costs of $40,000 and variable costs of $55,000.The company can buy the part from an outside supplier for $3 per unit and avoid 20% of the fixed costs.
If Valuable Electronics decides to outsource the production of the part,how will it impact its operating profit?

• A) decreases of $12,000
• B) decreases of $20,000
• C) increases of $20,000
• D) increases of $12,000

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Definitions:

Early 1980s

A period characterized by significant economic events such as high inflation, high interest rates, and the start of neoliberal economic policies in many countries.

Supply-Side Approach

An economic theory that advocates reducing barriers and taxes on the producers of goods and services to stimulate production and economic growth.

Tax Benefits

are reductions in tax obligations, given to encourage certain activities or investments, such as deductions, exemptions, or credits.

Start-Up Companies

New businesses that are in the initial stages of operation, often characterized by innovative products or services and high growth potential.