Answer:
operating income would decrease by $2,500 if tires are purchased
Explanation:
offer from outside vendor = $1.40 per tire
yearly demand = 50,000 tires
production costs:
- direct materials $0.25
- direct labor $0.80
- variable manufacturing overhead $0.30
- fixed costs $0.50
total costs = $1.85
total avoidable costs = $1.35
make tires buy tires differential amount
produce tires $92,500 $0 $92,500
buy tires $0 $95,000 ($95,000)
total $92,500 $95,000 ($2,500)
operating income would decrease by $2,500 if tires are purchased
