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Ulleksa [173]
2 years ago
6

Ortiz Co. produces 5,000 units of part A12E. The following costs were incurred for that level of production: Direct materials $

55,000 Direct labor 160,000 Variable overhead 75,000 Fixed overhead 175,000 If Ortiz buys the part from an outside supplier, $40,000 of the fixed overhead is avoidable. Reference: Ref 7-3 If the outside supplier offers a unit price of $68, net income will increase (decrease) by:_______.
Business
1 answer:
Archy [21]2 years ago
8 0

Answer:

Net income decreases by $10,000

Explanation:

                                                                          5,000 units

                                                     Make            Buy    

Direct materials                         $55,000

Direct labor                                $160,000

Variable overhead                     $75,000

Fixed overhead                          $175,000     $135,000 ($175,000-$40,000)

Cost to purchase (68*5000)     <u>                </u>     $<u>340,000</u>

Total cost                                    <u>$465,000</u>   <u>$475,000</u>

Cost lost = $465,000 - $475,000

Cost lost = -$10,000

So, Net income decreases by $10,000

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