weets Co$.-$ Make$/$Buy

Sweets Co$.$ makes wheels for use in the production of a children$$s ice cream truck toy. The cost for

Sweets to produce $220,000$ wheels annually are as follows:

Direct materials $$0\mathrm{.}20$

Direct labor $0\mathrm{.}40$

Variable manufacturing overhead $0\mathrm{.}10$

Fixed manufacturing overhead $0\mathrm{.}30$

Total $$1\mathrm{.}00$

An outside supplier has offered to sell Sweets similar wheels for $$0\mathrm{.}85$ per wheel. If the wheels are

purchased from the outside supplier, $$27,000$ of annual fixed manufacturing overhead would be

avoided and the facilities now being used to make the wheels would be rented to another company for

$$70,000$ per year. If Sweets chooses to buy the wheel from the outside supplier, how would that affect

the company$$s annual net operating income?

Banners Etc. $-$ Special Order

Banners Etc. has received a special order for $1,300$ units of its product at a special price of $$95.$

Sales for the product are normally $19,000$ units with a selling price of $$129$ per unit. The

manufacturing cost details are as follows:

Per Unit

Direct Materials $$40$

Direct Labor $$28$

Variable Manufacturing Overhead $$22$

Fixed Manufacturing Overhead $$18$

Unit Cost $$108$

Assume that Banner Etc. has sufficient capacity to fill the order without harming normal production

and sales.

a$.$ If Banners Etc. accepts the order, what effect will the order have on the company's net income?