Part P40 is a part used in the production of air conditioners at Jackson Corpora

Question

Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate to the production of Part P40 Number of parts produced annually Fixed costs Variable costs Total cost to produce 26,000 $41,000 $69,000 $110,000 urchasing he a Jackson Corporation can purchase he part rom an outside supplier for S4.55 per unit. f they purchase om he outside supplier 50% ofthe e costs would be a de outside source can be used to manufacture another product that can be sold for S2,400 profit. If Jackson Corporation makes the part, what will its operating income be? Assume a t y space ee u roman O A. $136,400 greater than if the company bought the part O B. $26,400 less than if the company bought the part O C. $31,200 greater than if the company bought the part O D. $26,400 greater than if the company bought the part

Explanation / Answer

If company make the part, companies net operating income will be $26,400 greater than if the company bought the part

Make Buy Variable costs $    69,000 Fixed costs $    41,000 $41,000*50% = $20,500 Purchase cost $4.55*26,000 = $118,300 Additional profit from other product $ (2,400) Net cost $ 110,000 $ 136,400

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