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 24,000 $40,000 $68,000 $108,000 Jackson Corporation can purchase the part from an outside supplier for $4.46 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If Jackson Corporation makes the part, how much will its operating income be? O A. $20,000 greater than if the company bought the part O B. $127,040 greater than if the company bought the part OC. $59,040 greater than if the company bought the part O D. $19,040 greater than if the company bought the part

Explanation / Answer

D. $19,040 greater than if the company bought the part.

Purchase cost(24,000 × $4.46) $107,040 Add: Unavoidable fixed cost(40,000 × 50%) $20,000 Total Cost to purchase $127,040 Less: Cost to build $108,000 Add'l cost to buy the part $19,040

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