Johnson Company manufactures one of the components, BELTO, required for its main product, ALTO. The manufacturing costs per unit for next month$$s production of $10,000$ units of BELTO when manufactured in house are:

Direct materials $$20$

Direct labor $15$

Variable factory overhead $16$

Allocated fixed factory overhead $24$

Total costs $$75$

Johnson$$s fixed factory overhead costs are not controllable and cannot be avoided in the short run. Assume that, for its next month$$s requirement, Johnson can buy all $10,000$ units of BELTO from another manufacturer at a price of $$64$ per unit. In such a situation, the machines currently used to make BELTO could be temporarily used to generate additional monthly contribution of $$150,000$ to temporarily meet the additional demand for one of Johnson$$s regular products. Under this situation, if Johnson buys BELTO from outside

A$.$

Johnson$$s monthly profit will decrease by $$40,000$

B$.$

Johnson$$s monthly profit will increase by $$40,000$

C$.$

Johnson$$s monthly profit will increase by $$20,000$

D$.$

Johnson$$s monthly costs will increase by $$490,000$

Answer rating: 100% (QA)

C Johnsons monthly profit will increase by 40000 Lets break down the cost and benefits of Johnson bu... View the full answer