The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs...
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Accounting
The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 100,000 wheels annually are:
Direct materials
$20,000
Direct labor
$30,000
Variable manufacturing overhead
$15,000
Fixed manufacturing overhead
$58,000
An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $13,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $35,000 per year. Direct labor is a variable cost.
If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:
Noreen 4e Recheck 2017-16-03
decrease by $2,000
increase by $20,000
increase by $33,000
increase by $28,000
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