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Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 40,000 parts is $130,000, which includes fixed
Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing 40,000 parts is $130,000, which includes fixed costs of $60,000 and variable costs of $70,000. The company can buy the part from an outside supplier for $3 per unit, and avoid 30% of the fixed costs. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for $13,000 profit. If Harvey Automobiles makes the part, what will its operating income be? A. $55,000 greater than if the company bought the part B. $19,000 greater than if the company bought the part C. $149,000 greater than if the company bought the part D. $19,000 less than if the company bought the part
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