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
