Ask Question
19 January, 05:13

Vest Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: Direct materials $ 75,000 Direct labor 120,000 Variable overhead 45,000 Fixed overhead 60,000 Total $300,000 An outside supplier has offered to sell the component for $12.75. Fixed cost will remain the same if the component is purchased from an outside supplier. Vest Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier. What is the effect on income if Vest purchases the component from the outside supplier

+4
Answers (1)
  1. 19 January, 06:56
    0
    If the company buys the component, income will decrease by $225,000.

    Explanation:

    Giving the following information:

    Units = 40,000

    The manufacturing cost:

    Direct materials $ 75,000

    Direct labor 120,000

    Variable overhead 45,000

    An outside supplier has offered to sell the component for $12.75.

    Vest Industries can rent its unused manufacturing facilities for $45,000.

    We will take into account only the differential costs.

    Make in - house:

    Total cost = 75,000 + 120,000 + 45,000 = $240,000

    Buy:

    Total cost = 40,000*12.75 - 45,000 = $465,000

    If the company buys the component, income will decrease by $225,000.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Vest Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: Direct ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers