Question

Harvey automobiles uses a standard part in the manufacture of several of its trucks. the cost of producing​ 90,000 parts is​ $130,000, which includes fixed costs of​ $70,000 and variable costs of​ $60,000. the company can buy the part from an outside supplier for​ $3.50 per​ unit, and avoid​ 30% of the fixed costs.

Answer 1

Answer:

If Harvey decides to purchase the parts instead of manufacturing them, their total costs will increase by $164,000

Explanation:

currently Harvey's costs are:

variable costs = $70,000

fixed costs = $60,000

total $130,000

total cost per unit = $130,000 / 90,000 units = $1.44 per unit

if Harvey decide to outsource the production of the parts:

variable costs = 90,000 x $3.50 = $315,000

decrease in fixed costs = $70,000 x -30% = -$21,000

total costs = $294,000

If Harvey decides to purchase the parts instead of manufacturing them, their total costs will increase by ⇒ $294,000 - $130,000 = $164,000