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Anni [7]
3 years ago
11

Billings Company has the following costs when producing 100,000 units: Variable costs $600,000 Fixed costs 900,000 An outside su

pplier has offered to make the item at $4.50 a unit. If the decision is made to purchase the item outside, current production facilities could be leased to another company for $165,000. The net increase (decrease) in the net income of accepting the supplier’s offer is
Business
1 answer:
Delvig [45]3 years ago
4 0

Answer:

Increase in income= $1,215,000

Explanation:

Giving the following information:

Billings Company has the following costs when producing 100,000 units: Variable costs $600,000 Fixed costs 900,000 An outside supplier has offered to make the item at $4.50 a unit. If the decision is made to purchase the item outside, current production facilities could be leased to another company for $165,000.

We don't know if all the fixed costs belong to the current production facilities. We will assume it does.

Current total cost= 600,000 + 900,000= $1,500,000

Buy= 4.5*100,000 - 165,000= 285,000

Increase in income= 1,500,000 - 285,000= $1,215,000

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