Blue Ridge Bicycles Uses a Standard Part in the Manufacture

Multiple Choice

Blue Ridge Bicycles uses a standard part in the manufacture of several of its bikes. The cost of producing 42,000 parts is $138,000, which includes fixed costs of $68,000 and variable costs of $70,000. The company can buy the part from an outside supplier for $3.50 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 $15,000 profit. If Blue Ridge Bicycles makes the part, what will its operating income be?

A) $41,600 greater than if the company bought the part
B) $41,600 less than if the company bought the part
C) $71,600 greater than if the company bought the part
D) $179,600 greater than if the company bought the part