Question

Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 60 comma 000 parts is $ 160 comma 000​, which includes fixed costs of $ 70 comma 000 and variable costs of $ 90 comma 000. The company can buy the part from an outside supplier for $ 3.00 per​ unit, and avoid​ 30% of the fixed costs. If Harvey Automobiles makes the​ part, how much will its operating income​ be?

Answer 1

$69,000

Step-by-step explanation:

The computation of the operating income would be shown below:

= Buying cost - making cost

where,

Buying cost equals to

= 60,000 × $3

= $180,000

And, the making cost would be

= Variable cost + fixed cost × avoid percentage

= $90,000 + $70,000 × 30%

= $90,000 + $21,000

= $111,000

Now put these values to the above formula

So, the value would equal to

= $180,000 - $111,000

= $69,000