Muscat Inc. has been manufacturing its own Camera for its Mobile Phone. The company is currently operating at 100% of capacity. Variable manufacturing overhead cost is OMR 3 per unit. The direct materials and direct labor cost per unit to make the camera are OMR 4 and OMR 6, respectively, fixed cost is OMR 50,000. Normal production is 50,000 Mobile Phone per year. A supplier offers to make the Cameras at a price of OMR 13.50 per unit. If Muscat accepts the supplier's offer; all variable manufacturing costs will be eliminated, but the OMR 50,000 of fixed manufacturing overhead currently being charged to the Cameras will have to be absorbed by other products. what will be the effect on net income? if the productive capacity released by not making the Cameras could be used to produce income of R.O. 40,000 Select one: a. OMR 725,000 increase b. OMR 25,000 decrease c. OMR 15,000 increase d. None of the answers are correct e. OMR 15,000 decrease

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
Muscat Inc. has been manufacturing its own Camera for its
Mobile Phone. The company is currently operating at 100% of
capacity. Variable manufacturing overhead cost is OMR 3 per unit.
The direct materials and direct labor cost per unit to make the
camera are OMR 4 and OMR 6, respectively, fixed cost is OMR
50,000. Normal production is 50,000 Mobile Phone per year.
A supplier offers to make the Cameras at a price of OMR 13.50
per unit. If Muscat accepts the supplier's offer; all variable
manufacturing costs will be eliminated, but the OMR 50,000 of
fixed manufacturing overhead currently being charged to the
Cameras will have to be absorbed by other products. what will be
the effect on net income? if the productive capacity released by
not making the Cameras could be used to produce income of R.O.
40,000
Select one:
a. OMR 725,000 increase
O b. OMR 25,000 decrease
O c. OMR 15,000 increase
d. None of the answers are correct
e. OMR 15,000 decrease
Transcribed Image Text:Muscat Inc. has been manufacturing its own Camera for its Mobile Phone. The company is currently operating at 100% of capacity. Variable manufacturing overhead cost is OMR 3 per unit. The direct materials and direct labor cost per unit to make the camera are OMR 4 and OMR 6, respectively, fixed cost is OMR 50,000. Normal production is 50,000 Mobile Phone per year. A supplier offers to make the Cameras at a price of OMR 13.50 per unit. If Muscat accepts the supplier's offer; all variable manufacturing costs will be eliminated, but the OMR 50,000 of fixed manufacturing overhead currently being charged to the Cameras will have to be absorbed by other products. what will be the effect on net income? if the productive capacity released by not making the Cameras could be used to produce income of R.O. 40,000 Select one: a. OMR 725,000 increase O b. OMR 25,000 decrease O c. OMR 15,000 increase d. None of the answers are correct e. OMR 15,000 decrease
Expert Solution
steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Special order decisions
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education