Fair Engineering Company manufactures part QE767 used in several of its engine models. Monthly production costs for 10,000 units are as follows: Direct materials $80,000 Direct labor 20,000 Variable support costs 50,000 Fixed support costs 40,000 Total Costs $190,000 It is estimated that 20% of the fixed support costs assigned to part QE767 will no longer be incurred if the company purchases the part from the outside supplier. Fair Engineering Company has the option of purchasing the part from an outside supplier at $16 per unit. If Fair Engineering Company purchases 10,000 QE767 parts from the outside supplier per month, then its monthly operating income will:
Fair Engineering Company manufactures part QE767 used in several of its engine models. Monthly production costs for 10,000 units are as follows: Direct materials $80,000 Direct labor 20,000 Variable support costs 50,000 Fixed support costs 40,000 Total Costs $190,000 It is estimated that 20% of the fixed support costs assigned to part QE767 will no longer be incurred if the company purchases the part from the outside supplier. Fair Engineering Company has the option of purchasing the part from an outside supplier at $16 per unit. If Fair Engineering Company purchases 10,000 QE767 parts from the outside supplier per month, then its monthly operating income will:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Fair Engineering Company manufactures part QE767 used in several of its engine models. Monthly production costs for 10,000 units are as follows:
| Direct materials | $80,000 |
| Direct labor | 20,000 |
| Variable support costs | 50,000 |
| Fixed support costs | 40,000 |
| Total Costs | $190,000 |
It is estimated that 20% of the fixed support costs assigned to part QE767 will no longer be incurred if the company purchases the part from the outside supplier. Fair Engineering Company has the option of purchasing the part from an outside supplier at $16 per unit.
If Fair Engineering Company purchases 10,000 QE767 parts from the outside supplier per month, then its monthly operating income will:
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