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Value Electronics uses a standard part in the manufacture of different types of radios. The total cost of producing 25,000 parts is $95,000, which includes fixed costs of $40,000 and variable costs of $55,000. The company can buy this part from an external supplier for $3 per unit and avoid 20% of the fixed costs. If Value Electronics decides to outsource the production of the part, how will it impact its operating income?
A) Operating income increases by $20,000.
B) Operating income decreases by $12,000.
C) Operating income increases by $12,000.
D) Operating income decreases by $20,000.
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Horngren's Financial & Managerial Accounting, The Financial Chapters

Horngren's Financial & Managerial Accounting, The Financial Chapters


Edition: 5th
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7 years ago
This was certainly a tough question, loving the expertise
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