Question

Bonita Industries incurs the following costs to produce 9800 units of a subcomponent: Direct materials $8232 Direct labor 11074 Variable overhead 12348 Fixed overhead 16200 An outside supplier has offered to sell Bonita the subcomponent for $2.85 a unit. If Bonita accepts the offer, by how much will net income increase (decrease)?

Answer 1

Answer:

$3,724

Explanation:

Total Cost of Manufacturing:

= Direct materials + Direct labor + Variable overhead + Fixed overhead

= $8,232 + $11,074 + $12,348 + $16,200

= $47,854

Variable Cost Per Unit =  ( $8,232 + $11,074 + $12,348) ÷ 9,800

                                      = $31,654 ÷ 9,800

                                      = $3.23 per unit

Offer from Outside Supplier = $2.85 Per Unit

Difference = Variable Cost Per Unit - Offer from Outside Supplier

                  = 3.23 - 2.85

                  = $0.38 Per Unit

Total Difference = 0.38 × 9,800

                           = $3,724

The Increase in net Income from accepting the offer is $3,724.