Valuable Electronics uses a standard part in the

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. 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 income?

A) Increase of $12,000

B) Decrease of $12,000

C) Increase of $20,000

D) Decrease of $20,000



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