Blue ridge bicycles uses a standard part in the manufacture of several of its bikes. the cost of producing 45 comma 000 parts is $ 138 comma 000, which includes fixed costs of $ 69 comma 000 and variable costs of $ 69 comma 000. the company can buy the part from an outside supplier for $ 4.00 per unit, and avoid 30% of the fixed costs.

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Blue ridge bicycles uses a standard part in the manufacture of several of its bikes. the cost of producing 45 comma 000 parts is $ 138 comma 000, which includes fixed costs of $ 69 comma 000 and variable costs of $ 69 comma 000. the company can buy the part from an outside supplier for $ 4.00 per unit, and avoid 30% of the fixed costs.  what will be the operating income if Blue Ridge makes the parts.

Answer : $85800

Explanation:

number of units produced = 45000

total cost = $138000

fixed cost = $69000

variable cost = $69000

cost per unit of production = variable cost / number of units produced

= $69000 / 45000 = $1.53

when the company decides to purchase the part

variable cost = cost per unit ( $4) * number of units ( 45000)

                      = $180000

fixed cost = $69000 - ( 30% of $69000)

                 = $69000 - $20700 = $43800

therefore total cost =  $43800 + $180000 = $223800

therefore the

operating income if Blue ridge produces the parts will be = $223800 - $138000 = $85800

answer; capital structure decision;