Question

What is the change in net income if fixed cost of $20,000 can be avoided and Frannie could rent out the factory space no longer in use for $20,000?

Answer 1

Answer:

Note The full question is attached as picture below

1). Purchasing cost = 10,000* $18

Purchasing cost = $180,000

Making cost = Direct material + Direct labor + Variable overhead

Making cost = $65,000 + $55,000 + $30,000

Making cost = $150,000

Difference in cost (Per unit) = ($180,000-$150,000) / 10,000\

Difference in cost (Per unit) = $3

Change in net income = $180,000 - $150,000

Change in net income = $30,000 (Decrease)

2. Purchasing cost = 10,000*$18

Purchasing cost = $180,000

Making cost = Direct material + Direct labour + Variable overhead + Fixed overhead

Making cost = $65,000 + $55,000 + $30,000 + $20,000

Making cost = $170,000

Difference in cost (per unit) = ($180,000 - $170,000) / 10,000

Difference in cost (per unit) = $1

Change in net income (decrease) = $170,000 - $180,000

Change in net income (decrease) = $10,000

3. Purchasing cost = $180,000 - $20,000

Purchasing cost = $160,000

Making cost = Direct material + Direct labour + Variable overhead + Fixed overhead

Making cost = $65,000 + $55,000 + $30,000 + $20,000

Making cost = $170,000

Change in net income = $170,000 - $160,000

Change in net income = $10,000 (increase)