Question

An outside supplier has offered to provide Maxter Corp with the 10,000 subcomponents at a $65 per unit price. If Maxter Corp accepts the outside offer, what will be the effect on short-term profits? Group of answer choices $200,000 increase $150,000 decrease No change $50,000 increase

Answer 1

Option b ($150,000 decrease) is the correct answer.

Step-by-step explanation:

Given:

Fixed manufacturing overhead,

= $65

Units,

= 10,000

According to the question,

Current cost is:

=
`70* 10,000`

=
`700,000` ($)

The expected cost will be:

=
`Fixed \ manufacturing \ overhead+(Units* Purchase \ price)`

By substituting the values, we get

=
`(65* 10000)+200000`

=
`650000+200000`

=
`850000`

then,

=
`850000-700000`

=
`150000` ($)

Thus the above is the right answer.