9. Part J88 is used in one of FGH Corporation's products. The company makes 3,000 units of this part each year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit P7.70 Direct materials Direct labor Variable manufacturing overhead Supervisor's Salary Depreciation of special equipment P5.90 Allocated general overhead P6.00 P8.00 P7.60 P3.30 An outside supplier has offered to produce this part and sell it to the company for P32.10 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only P3,000 of these allocated general overhead costs would be avoided. If management decides to buy part J88 from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income? A. Net operating income would decline by P22,200 per year. B. Net operating income would decline by P16,200 per year. C. Net operating income would decine by P5,400 per year. D. Net operating income would decline by P19,200 per year.
9. Part J88 is used in one of FGH Corporation's products. The company makes 3,000 units of this part each year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit P7.70 Direct materials Direct labor Variable manufacturing overhead Supervisor's Salary Depreciation of special equipment P5.90 Allocated general overhead P6.00 P8.00 P7.60 P3.30 An outside supplier has offered to produce this part and sell it to the company for P32.10 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only P3,000 of these allocated general overhead costs would be avoided. If management decides to buy part J88 from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income? A. Net operating income would decline by P22,200 per year. B. Net operating income would decline by P16,200 per year. C. Net operating income would decine by P5,400 per year. D. Net operating income would decline by P19,200 per year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:(D P2,
9. Part J88 is used in one of FGH Corporation's products. The company makes 3,000
units of this part each year. The company's Accounting Department reports the
following costs of producing the part at this level of activity:
Per Unit
Direct materials
P7.70
Direct labor
Variable manufacturing overhead
Supervisor's Salary
Deprecia tion of special equipment P5.90
Allocated general overhead
P6.00
P8.00
P7.60
P3.30
An outside supplier has offered to produce this part and sell it to the company for
P32.10 each. If this offer is accepted, the supervisor's salary and all of the variable
costs, including direct labor, can be avoided. The special equipment used to make the
part was purchased many years ago and has no salvage value or other use. The
allocated general overhead represents fixed costs of the entire company. If the outside
supplier's offer were accepted, only P3,000 of these allocated general overhead costs
would be avoided.
If management decides to buy part J88 from the outside supplier rather than to
continue making the part, what would be the annual impact on the company's overall
net operating income?
A. Net operating income would decline by P22,200 per year.
B. Net operating income would decline by P16,200 per year.
C. Net operating income would decline by P5,400 per year.
D. Net operating income would decline by P19,200 per year.
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