FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Justine Corporation currently makes rolls for deli sandwiches it produces. It uses 40,000 rolls annually in the production of deli sandwiches. The costs to make the rolls are given below:

 

Materials                                               $0.24 per roll

Labor                                                    $0.40 per roll

Variable overhead                                $0.16 per roll

Fixed overhead                                    $0.20 per roll

 

A potential supplier has offered to sell Justine the rolls for $0.95 each. If the rolls are purchased, 20% of the fixed overhead could be avoided. If Justine accepts the offer, what will the effect on profit be?

   

$4,400 increase in profit

   

$1,200 increase in profit

   

$3,300 increase in profit

   

$3,300 decrease in profit

   

$4,400 decrease in profit

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