The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce
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The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 260,000 wheels annually are:
Direct materials | $52,000 |
Direct labor | $78,000 |
Variable manufacturing overhead | $39,000 |
Fixed manufacturing overhead | $79,000 |
An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $34,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $93,400 per year. Direct labor is a variable cost.
If Talbot chooses to buy the wheel from an outside supplier, then the annual net operating income would:
Noreen 4e Recheck 2017-16-03
increase by $52,000
decrease by $5,000
increase by $88,400
increase by $70,600
Related Book For
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078111044
16th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello
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