Parrot Enterprises manufactures one of the components used to assemble its main company product. Specialty Products, Inc., has offered to make the component at a cost of $12.20 per unit. Parrot Enterprises' current cost is $15.25 per unit of the component, based on the 110,000

components that Parrot Enterprises currently produces. Read the requirements

This current cost per unit is based on the following calculations:

Enterprises' fixed costs will be eliminated if the component is outsourced. However, the freed capacity could be used to build a new product. This new product would be expected to generate $28,000 of contribution margin per year.

Requirement:

If Parrot Enterprises outsources the manufacturing of the component, will operating income increase or decrease??

By how much??

(Enter a "0" for any zero balances. Use a minus sign or parentheses in the Difference column when the cost to make exceeds the cost to buy.)

Incremental Analysis	Make	Outsource
Outsourcing Decision	Component	Component	Difference
Variable costs
Plus: Fixed costs
Total cost of 110,000 components
Less: Profit from another product
Net cost

Transcribed Image Text:

Data table Direct material per unit..... Direct labor per unit. . . . . . . . Variable manufacturing overhead per unit Fixed manufacturing overhead per unit.. Total manufacturing costs per unit... ...$ $ 5.50 6.75 0.50 2.50 15.25 Data table Direct material per unit..... Direct labor per unit. . . . . . . . Variable manufacturing overhead per unit Fixed manufacturing overhead per unit.. Total manufacturing costs per unit... ...$ $ 5.50 6.75 0.50 2.50 15.25

Answer rating: 100% (QA)

ANS WER No operating income will not increase if Par rot Enterprises o... View the full answer