Ring Company makes telephones. Currently, Ring makes all components of the telephones in-house. An outside company has offered to supply one component, part number X76, for $12 each. Ring uses 22,000 of these components per year. Costs of X76 are as follows: Direct materials $3.00 Direct labor $1.50 Variable overhead $2.75 Fixed overhead $5.00 Refer to Figure 13-7. Assume that all of the fixed overhead is allocated and cannot be avoided. Should Ring purchase the part from the outside supplier? Yes, income will increase by $104,500. No, income will decrease by $104,500. Yes, income will increase by $78,500. Yes, income will increase by $95,500. Yes, income will increase by $137,500.
Ring Company makes telephones. Currently, Ring makes all components of the telephones in-house. An outside company has offered to supply one component, part number X76, for $12 each. Ring uses 22,000 of these components per year. Costs of X76 are as follows: Direct materials $3.00 Direct labor $1.50 Variable overhead $2.75 Fixed overhead $5.00 Refer to Figure 13-7. Assume that all of the fixed overhead is allocated and cannot be avoided. Should Ring purchase the part from the outside supplier? Yes, income will increase by $104,500. No, income will decrease by $104,500. Yes, income will increase by $78,500. Yes, income will increase by $95,500. Yes, income will increase by $137,500.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Ring Company makes telephones. Currently, Ring makes all components of the telephones in-house. An outside company has offered to supply one component, part number X76, for $12 each. Ring uses 22,000 of these components per year. Costs of X76 are as follows:
Refer to Figure 13-7. Assume that all of the fixed overhead is allocated and cannot be avoided. Should Ring purchase the part from the outside supplier?
| Direct materials |
$3.00
|
| Direct labor |
$1.50
|
| Variable |
$2.75
|
| Fixed overhead |
$5.00
|
Refer to Figure 13-7. Assume that all of the fixed overhead is allocated and cannot be avoided. Should Ring purchase the part from the outside supplier?
|
Yes, income will increase by $104,500.
|
||
|
No, income will decrease by $104,500.
|
||
|
Yes, income will increase by $78,500.
|
||
|
Yes, income will increase by $95,500.
|
||
|
Yes, income will increase by $137,500.
|
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