Reference no: EM132453213

Question 1 - RED Industries manufactures 20,000 components per year. The manufacturing cost per component was determined to be as follows:

Direct materials $30,000

Direct labor 45,000

Variable manufacturing overhead 10,000

Fixed manufacturing overhead 35,000

Total $120,000

An outside supplier has offered to sell the component for $5.25.

If RED Industries purchases the component from the outside supplier, the effect on income would be a

a. $15,000 decrease.

b. $20,000 decrease.

c. $15,000 increase.

d. $35,000 increase.

Question 2 - BG Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined to be as follows:

Direct materials $50,000

Direct labor 80,000

Variable manufacturing overhead 30,000

Fixed manufacturing overhead 40,000

Total $200,000

Assume BG Industries could avoid $15,000 of fixed manufacturing overheads if it purchases the component from an outside supplier. If BG purchases the component from a supplier for $4.25 per unit instead of manufacturing it, the effect on income would be a

a. $5,000 increase.

b. $15,000 increase.

c. $25,000 decrease.

d. $35,000 increase.

Question 3 - Salish Industries manufactures a product with the following costs per unit at the expected production of 60,000 units:

Direct materials $8

Direct labor 15

Variable manufacturing overhead 10

Fixed manufacturing overhead 12

The company has the capacity to produce 70,000 units. The product regularly sells for $60. A wholesaler has offered to pay $55 each for 5,000 units.

If the special order is accepted, the effect on operating income would be a

a. $42,000 decrease

b. $67,000 increase

c. $110,000 increase

d. $182,000 decrease