DC Electronics uses a standard part in the manufacture of several of its radios. The cost...

DC Electronics uses a standard part in the manufacture of several of its radios. The cost of producing 30,000 parts is $90,000, which includes fixed costs of $33,000 and variable costs of $57,000. By outsourcing the part, the company can avoid 30% of the fixed costs.

If DC Electronics buys the part, what is the most DC Electronics can spend per unit so that operating income equals the operating income from making the part?

	a.	$3.00
	b.	$2.67
	c.	$2.23
	d.	$2.34

Expert Solution

Correct option is: C. $2.23

Workings:
	Make	Buy	Net Income increase (decrease)
Variable cost	$ 57,000	0	$ 57,000
Fixed cost	$ 33,000	$ 23,100	$ 9,900
Total cost	$ 90,000	$ 23,100	$ 66,900

Maximum cost to Buy	=	$66900 / 30000 units
	=	$ 2.23

ekkarill92 answered 2 years ago

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