Answer:
It is more convenient to produce in house, so the Best Bicycles makes the part, its operating income will be $140,000
Explanation:
Given the information:
The cost of producing 43,000 parts is $140,000 :
- fixed costs of $68,000
- variable costs of $72,000
outside supplier for $3.80 per unit
avoid 30% of the fixed costs
As we know, the total costs if company bought is as following;
= Cost of production × Outside supplier per unit) + (Fixed cost × Remaining percentage)
= (43,000*$3.80 per unit) + ($68,000*(100% - 30%))
= $163,400 + $47,600
= $211,000
=> the loss in income if the company decided to buy:
= the total costs if company bought - The cost of production
= $211,000 - $140,000
= $71,000
It is more convenient to produce in house, so the Best Bicycles makes the part, its operating income will be $140,000
