AlphaBrona Industries manufactures 50,000 components per year. The manufacturing cost of the components was determined as follows: Direct materials $ 80,000 Direct labor 100,000 Variable overhead 30,000 Fixed overhead 60,000 Total $270,000 An outside supplier has offered to sell the component to AlphaBrona for $10 per unit. Fixed costs will remain the same if the component is purchased from an outside supplier. What will be the effect on income if AlphaBrona Industries purchases the component from the outside supplier? a. $290,000 decrease b. $290,000 increase c. $45,000 decrease d. $45,000 increase
AlphaBrona Industries manufactures 50,000 components per year. The manufacturing cost of the components was determined as follows: Direct materials $ 80,000 Direct labor 100,000 Variable overhead 30,000 Fixed overhead 60,000 Total $270,000 An outside supplier has offered to sell the component to AlphaBrona for $10 per unit. Fixed costs will remain the same if the component is purchased from an outside supplier. What will be the effect on income if AlphaBrona Industries purchases the component from the outside supplier? a. $290,000 decrease b. $290,000 increase c. $45,000 decrease d. $45,000 increase
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
AlphaBrona Industries manufactures 50,000 components per year. The manufacturing cost of the components was determined as follows:
|
Direct materials |
$ 80,000 |
|
Direct labor |
100,000 |
|
Variable |
30,000 |
|
Fixed overhead |
60,000 |
|
Total |
$270,000 |
An outside supplier has offered to sell the component to AlphaBrona for $10 per unit. Fixed costs will remain the same if the component is purchased from an outside supplier.
What will be the effect on income if AlphaBrona Industries purchases the component from the outside supplier?
a.
$290,000 decrease
b.
$290,000 increase
c.
$45,000 decrease
d.
$45,000 increase
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