Question

UTES, HUIC VILICU QUESTION 11 Figure 13-7. company makes telephones. Currently, Ring makes all components of the telephones in-house an outside company has offered to supply one component, part number X76, for $12 each. Ring uses 22.000 of these components per year. Costs of X76 are as follows: Direct materials $3.00 Direct labor $1.50 Variable overhead $2.75 Fixed overhead $5.00 Refer to Figure 13-7. Assume that all of the fixed overhead is allocated and cannot be avoided. Should Ring purchase the part from the outside supplier? O Yes, income will increase by $104,500. O No, income will decrease by $104,500. Yes, income will increase by $78,500. O Yes, income will increase by $95,500. Yes, income will increase by $137.500. ck Save and Submit to save and submit. Click Save All Answers to save all answers.

Answer 1

Correct answer------------No, income will decrease by $104,500

Working

Differential Analysis
	Make (cost per unit x 22000)	Buy (22000 x $12)
Direct material	$       66,000.00
Direct labor	$       33,000.00
Variable Overheads	$       60,500.00
Purchase price		$       264,000.00
Total relevant Cost	$ 159,500	$ 264,000

.

Total Cost of Buying	$     264,000.00
Total Cost of manufacturing	$     159,500.00
Financial advantage of making	$     104,500.00