Use the Information Below to Answer the Following Question(s)

question 226

Multiple Choice

Use the information below to answer the following question(s) :
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:

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 purchases the part, how much will its operating income be?

• A) $3,000 less than if the company made the part
• B) $24,000 less than if the company made the part
• C) $1,000 less than if the company made the part
• D) $5,000 greater than if the company made the part

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Definitions:

Labor Savings

A reduction in the amount of labor required or a decrease in labor costs, often as a result of improved efficiency or automation.

Useful Life

The estimated period over which an asset is expected to be used before it is fully depreciated.

Profitability Index

A ratio that compares the present value of future cash flows of a project to its initial investment, used to assess the desirability of projects.

Investment Proposals

Plans or suggestions put forward for consideration, primarily for the purpose of making investments.