Olive Corporation currently makes 12,900 subcomponents a year in one of its factories. The unit...
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Accounting
Olive Corporation currently makes 12,900 subcomponents a year in one of its factories. The unit costs to produce are:
Cost per Unit
Direct materials
$ 20
Direct labor
27
Variable manufacturing overhead
14
Fixed manufacturing overhead
11
Total unit cost
$ 72
An outside supplier has offered to provide Olive with the 12,900 subcomponents at a $76 per-unit price. No portion of fixed overhead is avoidable. If Olive rejects the outside offer, what will be the effect on short-term profits?
Multiple Choice
$193,500 increase
no change
$141,900 decrease
$193,500 decrease
Answer & Explanation
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