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Cotton Corp. currently makes 12,500 subcomponents a year in one of its factories. The unit costs to produce are:     Per unit Direct materials   $ 24.00 Direct labor     20.00 Variable manufacturing overhead     19.00 Fixed manufacturing overhead     9.00 Total unit cost   $ 72.00   An outside supplier has offered to provide Cotton Corp. with the 12,500 subcomponents at an $76.00 per unit price. Fixed overhead is not avoidable. If Cotton Corp. accepts the outside offer, what will be the effect on short-term profits?   Multiple Choice   no change   $78,750 increase   $112,500 increase   $162,500 decrease

Cotton Corp. currently makes 12,500 subcomponents a year in one of its factories. The unit costs to produce are:     Per unit Direct materials   $ 24.00 Direct labor     20.00 Variable manufacturing overhead     19.00 Fixed manufacturing overhead     9.00 Total unit cost   $ 72.00   An outside supplier has offered to provide Cotton Corp. with the 12,500 subcomponents at an $76.00 per unit price. Fixed overhead is not avoidable. If Cotton Corp. accepts the outside offer, what will be the effect on short-term profits?   Multiple Choice   no change   $78,750 increase   $112,500 increase   $162,500 decrease

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Cotton Corp. currently makes 12,500 subcomponents a year in one of its factories. The unit costs to produce are:
 

  Per unit
Direct materials   $

24.00
Direct labor    

20.00
Variable manufacturing overhead    

19.00
Fixed manufacturing overhead    

9.00
Total unit cost   $

72.00
 


An outside supplier has offered to provide Cotton Corp. with the 12,500 subcomponents at an $76.00 per unit price. Fixed overhead is not avoidable. If Cotton Corp. accepts the outside offer, what will be the effect on short-term profits?

 

Multiple Choice

  •  

    no change

  •  

    $78,750 increase

  •  

    $112,500 increase

  •  

    $162,500 decrease

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