Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of producing parts is , which includes fixed costs of and variable costs of . The company can buy the part from an outside supplier for 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 $ profit. If Harvey Automobiles makes the part, what will its operating income be?

$26000 greater than if the company bought the part

Explanation:

The computation of the operating income in case of the making part is shown below:

In making 40,000 parts

The relevant cost is $60,000

In the case when the product is buyed from outsider

Purchase costs   ($3 × 40,000)   $120,000

Less - avoidable fixed cost ($70,000 × 30%)  ($21,000

Less; profit from the sale of another product ($13,000 )

Relevant cost to buy  $86,000

Now the difference of cost is

= $86,000 - $60,000

= $26,000

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the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.