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15 August, 19:38

Waterway Industries incurs the following costs to produce 11800 units of a subcomponent: Direct materials $9912 Direct labor 13334 Variable overhead 14868 Fixed overhead 16200 An outside supplier has offered to sell Waterway the subcomponent for $2.85 a unit. If Waterway accepts the offer, by how much will net income increase (decrease) ?

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  1. 15 August, 19:45
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    If the company buys the subcomponent, the company will save $4,484.

    Explanation:

    Giving the following information:

    Production = 11,800 units

    Direct materials = $9,912

    Direct labor = $13,334

    Variable overhead = $14,868

    Total variable cost = $38,114

    An outside supplier has offered to sell Waterway the subcomponent for $2.85 a unit.

    We have no reason to believe that the fixed costs are avoidable. Therefore, they take no part in the decision making process.

    Total cost of production = 38,114

    Total cost of buying = 11,800*2.85 = 33,630

    If the company buys the subcomponent, the company will save $4,484.
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Home » Business » Waterway Industries incurs the following costs to produce 11800 units of a subcomponent: Direct materials $9912 Direct labor 13334 Variable overhead 14868 Fixed overhead 16200 An outside supplier has offered to sell Waterway the subcomponent for $2.
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