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
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
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 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
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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