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Question 12 A company incurs the following costs per kin producing 25.000 XVZ which is a part that is used in making its produe Direct materials $3.00 Direct labor $4.00 Variable manufacturing overhead $2.60 Fixed manufacturing overhead $3.40 Total product costs per unit $13.00 Instead of making Part XYZ, the company can purchase the part at a price of $12 per unit. The company has determined that 70% of the fixed manufacturing overhead cannot be avoided even if the part is purchased. Additionally, if the company purchases Part XYZ, it can generate rental income of $40,000 annually by renting out the space in the factory that is currently being used to make the part. What would be the effect on profitability if the company decides to purchase Part XYZ instead of continuing to make it? Increase in profitability of $85,000 Increase in profitability of $39,100 Increase in profitability of $23,800 Decrease in profitability of $22,100 None of the above

Question 12 A company incurs the following costs per kin producing 25.000 XVZ which is a part that is used in making its produe Direct materials $3.00 Direct labor $4.00 Variable manufacturing overhead $2.60 Fixed manufacturing overhead $3.40 Total product costs per unit $13.00 Instead of making Part XYZ, the company can purchase the part at a price of $12 per unit. The company has determined that 70% of the fixed manufacturing overhead cannot be avoided even if the part is purchased. Additionally, if the company purchases Part XYZ, it can generate rental income of $40,000 annually by renting out the space in the factory that is currently being used to make the part. What would be the effect on profitability if the company decides to purchase Part XYZ instead of continuing to make it? Increase in profitability of $85,000 Increase in profitability of $39,100 Increase in profitability of $23,800 Decrease in profitability of $22,100 None of the above

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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Question 12 A company incurs the following costs per kin producing 25.000 XVZ which is a part that is used in making its produe Direct materials $3.00 Direct labor $4.00 Variable manufacturing overhead $2.60 Fixed manufacturing overhead $3.40 Total product costs per unit $13.00 Instead of making Part XYZ, the company can purchase the part at a price of $12 per unit. The company has determined that 70% of the fixed manufacturing overhead cannot be avoided even if the part is purchased. Additionally, if the company purchases Part XYZ, it can generate rental income of $40,000 annually by renting out the space in the factory that is currently being used to make the part. What would be the effect on profitability if the company decides to purchase Part XYZ instead of continuing to make it? Increase in profitability of $85,000 Increase in profitability of $39,100 Increase in profitability of $23,800 Decrease in profitability of $22,100 None of the above
Transcribed Image Text:Question 12 A company incurs the following costs per kin producing 25.000 XVZ which is a part that is used in making its produe Direct materials $3.00 Direct labor $4.00 Variable manufacturing overhead $2.60 Fixed manufacturing overhead $3.40 Total product costs per unit $13.00 Instead of making Part XYZ, the company can purchase the part at a price of $12 per unit. The company has determined that 70% of the fixed manufacturing overhead cannot be avoided even if the part is purchased. Additionally, if the company purchases Part XYZ, it can generate rental income of $40,000 annually by renting out the space in the factory that is currently being used to make the part. What would be the effect on profitability if the company decides to purchase Part XYZ instead of continuing to make it? Increase in profitability of $85,000 Increase in profitability of $39,100 Increase in profitability of $23,800 Decrease in profitability of $22,100 None of the above
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