Question

Tolton, Inc. is just shy of hitting its operating income target. The manager, K.T. Tolton, decides to purchase inferior materials right before year end. The standard price for the materials is $13.00 per pound. K.T. buys 3,000 pounds of inferior product at $11.37 per pound. What is the effect on net income for the year? Please sign an increase as a positive number (e.g. 100) and a decrease as a negative number (e.g. -100).

Answer 1

Net income increase - $4,890

Step-by-step explanation:

The computation of the effect on net income is shown below:

= Number of pounds of inferior product × (standard price for the materials - inferior product price per pound)

= 3,000 pounds × ($13 - $11.37)

= 3,000 pounds × $1.63

= $4,890 increase

For determining the effect we took the difference of the prices and then multiply it with the number of pounds of the inferior product