Question

An outside supplier has offered to provide Maxter Corp with the 10,000 subcomponents at a $65 per unit price. If Maxter Corp accepts the outside offer, what will be the effect on short-term profits? Group of answer choices $200,000 increase $150,000 decrease No change $50,000 increase

Answer 1

Answer:

Option b ($150,000 decrease) is the correct answer.

Explanation:

Given:

Fixed manufacturing overhead,

= $65

Units,

= 10,000

According to the question,

Current cost is:

= $70\times 10,000$

= $700,000$ ($)

The expected cost will be:

= $Fixed \ manufacturing \ overhead+(Units\times Purchase \ price)$

By substituting the values, we get

= $(65\times 10000)+200000$

= $650000+200000$

= $850000$

then,

= $850000-700000$

= $150000$ ($)

Thus the above is the right answer.