Y Ltd. Manufactures component X. Per unit cost details of component X at current production of 115,000 units is provided below: Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total Per unit cost $5.25 $6.50 $0.50 $1.50 $13.75 An outside supplier has offered to sell 115,000 units of component X for a cost of $12.50 per unit. If outside supplier's offer is accepted, Y ltd. Will continue to incur all the fixed costs, however, the facility could be used to produce new product that would generate annual contribution margin of $31,000. Assume Y Ltd. Accepts the outside suppliers' offer, determine the impact on operating income of Y ltd. Operating income will increase by $2,250. Operating income will increase by $28,750. Operating income will decrease by $2,250. Operating income will decrease by $28,750.
Y Ltd. Manufactures component X. Per unit cost details of component X at current production of 115,000 units is provided below: Direct material Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total Per unit cost $5.25 $6.50 $0.50 $1.50 $13.75 An outside supplier has offered to sell 115,000 units of component X for a cost of $12.50 per unit. If outside supplier's offer is accepted, Y ltd. Will continue to incur all the fixed costs, however, the facility could be used to produce new product that would generate annual contribution margin of $31,000. Assume Y Ltd. Accepts the outside suppliers' offer, determine the impact on operating income of Y ltd. Operating income will increase by $2,250. Operating income will increase by $28,750. Operating income will decrease by $2,250. Operating income will decrease by $28,750.
Chapter5: Process Costing
Section: Chapter Questions
Problem 2PB: The following product costs are available for Kellee Company on the production of eyeglass frames:...
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