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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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.
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