27. Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 40,000 parts is $120,000, which includes fixed costs of $60,000 and variable costs of $60,000. The company can buy the part from an outside supplier for $3.00 per unit, and avoid 30% of the fixed costs. If Harvey Automobiles makes the part, how much will its operating income be?

Select one:

a. $42,000 greater than if the company bought the part

b. $42,000 less than if the company bought the part

c. $78,000 greater than if the company bought the part

d. $78,000 less than if the company bought the part

Cuyahoga Valley Bicycles uses a standard part in the manufacture of several of its bikes. The cost of producing 40,000 parts is $138,000, which includes fixed costs of $68,000 and variable costs of $70,000. By outsourcing the part, the company can avoid 30% of the fixed costs. If Cuyahoga Valley Bicycles buys the part, what is the most Cuyahoga Valley Bicycles can spend per unit so that operating income equals the operating income from making the part?

Select one:

a. $1.33

b. $2.26

c. $4.64

d. $2.33