Question

Swifty Corporation incurs the following costs to produce 8600 units of a subcomponent: Direct materials $7224 Direct labor 9718 Variable overhead 10836 Fixed overhead 16200 An outside supplier has offered to sell Swifty the subcomponent for $2.85 a unit. If Swifty could avoid $3000 of fixed overhead by accepting the offer, net income would increase (decrease) by

Answer 1

Answer:

increased by $6,268

Explanation:

The computation of the change in the net income is shown below:

Particulars              Make                Buy                 Difference

Direct materials     $7,224                $0                  $7,224

Direct labor            $9,718                 $0                  $9,718

Variable overhead $10,836            $0                   $10,836

Fixed overhead      $16,200            $13,200          $3,000

Purchase price

(8,600 units × $2.85) $0                 $24,510         -$24,510

Change in income  $43,978            $37,710           $6268

Net income would increased by $6,268 if the order is accepted