CI | Search. Favorites Tools Help Time remaining: 0:20.2)7 00 points The Talbot
ID: 342053 • Letter: C
Question
CI | Search. Favorites Tools Help Time remaining: 0:20.2)7 00 points The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbor's costs to produce 220.000 wheels annualy are: Direct materials Direct labor Vanable manufacturing overhead Fixed manufacturing overheed $44,000 $66,000 $33,000 $72,000 An outside supplier has offered to sell Talbot simlar wheels for $0.80 per wheel If the wheels are purchased from the outside supplier, $27000 of ennual fixed overhead could be avoided and the facities now being used could be rented to another company for $65,400 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 O increase by $44,000 O decrease by $6.000 O increase by $71600 O increase by $59,400Explanation / Answer
Annual net operating income increase by 59400
Particulars Amount Cost of manufacture Direct materials 44000 Direct labor 66000 variable manufacturing overhead 33000 Fixed manufacturing overhead 72000 Total 215000 Cost of outside procurement Cost of Purchases (0.8*220000) 176000 Add: Unavoidable fixed cost (72000-27000) 45000 Less: Income From Rent -65400 Cost of Procurement 155600 Annual net operating income 59400