what is the incremental effect on the company’s net income?
- Watson Wheels currently makes 6,000 wheels annually that are used in other products it manufactures. Current unit costs for the wheels are as follows:
Direct materials $22.00
Direct labor 16.00
Variable manufacturing
Fixed manufacturing overhead 15.00
Total $65.00
The company has an offer from a manufacturer to produce the wheels for $60 per wheel. If the company decides to buy the wheels, the empty warehouse space could be rented for $22,000 annually. In addition, half of the fixed
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