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 P12 each. Ring uses 22,000 of these components per year. Costs of X76 are as follows:    Direct materials, P3.00    Direct labor, P1.50    Variable overhead, P2.75    Fixed overhead, P5.00   Suppose that only 30% of the fixed overhead is unavoidable even if part X76 is not made by Ring. Should Ring purchase the part from the outside supplier? Group of answer choices A. No, income will decrease by P15,000 B. Yes, income will increase by P74,500 C. No, income will decrease by P71,500 D. Yes, income will increase by P10,500 E. No, income will decrease by P27,500 F. No, income will decrease by P10,500

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 P12 each. Ring uses 22,000 of these components per year. Costs of X76 are as follows:

   Direct materials, P3.00

   Direct labor, P1.50

   Variable overhead, P2.75

   Fixed overhead, P5.00

 

Suppose that only 30% of the fixed overhead is unavoidable even if part X76 is not made by Ring. Should Ring purchase the part from the outside supplier?

Group of answer choices
A. No, income will decrease by P15,000
B. Yes, income will increase by P74,500
C. No, income will decrease by P71,500
D. Yes, income will increase by P10,500
E. No, income will decrease by P27,500
F. No, income will decrease by P10,500
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