Question

The manufacturing overhead consists of $16,000 of costs that will be eliminated if the

components are no longer produced by Mallory. From Mallory's point of view, how
much is the incremental cost or savings if the widgets are bought instead of made?
A) $18,000 incremental savings
B) $6,000 incremental cost
C) $2,000 incremental savings
D) $18,000 incremental cost

Answer 1

If Mallory buys the widgets instead of making them, they would have a savings of $16,000.

Step-by-step explanation:

The incremental cost or savings for Mallory if they buy the widgets instead of making them can be calculated by subtracting the manufacturing overhead costs that will be eliminated from the cost of producing the widgets. In this case, the manufacturing overhead costs that will be eliminated amount to $16,000. Therefore, the incremental cost or savings for Mallory would be a savings of $16,000.