Talbot Corporation manufactures wheels that it uses in the production of bicycles. Talbot's costs to produce 160,000 wheels per year are:

Direct materials	$32,000
Direct labour	$48,000
Variable manufacturing overhead	$24,000
Fixed manufacturing costs	$64,000

A third-party vendor has offered to sell similar wheels to Talbot for $0.80 per wheel. If the wheels are purchased from an outside vendor, $19,000 of fixed overhead per year could be avoided and the facility now in use could be rented to another company for $48,200 per year. Direct labor is a variable cost.

If Talbot chooses to purchase the wheel from the outside supplier, then the annual net operating income would be ?

Answer rating: 100% (QA)

First lets calculate the total cost to produce 160000 wheels per year Total cost Direct materials Di... View the full answer