Question

Bramble Corp. incurs the following costs to produce 9900 units of a subcomponent: Direct materials $8316 Direct labor 11187 Variable overhead 12474 Fixed overhead 16200 An outside supplier has offered to sell Bramble the subcomponent for $2.85 a unit. If Bramble accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3600. The increase (decrease) in net income from accepting the offer would be

A. $7362.
B. $162.
C. $(162).
D. $(3600).

Answer 1

A. $7362.

Step-by-step explanation:

The computation of the increase (decrease) in net income from accepting the offer would be shown below/:

cost to produce 9900 units is

= $8,316 + $11,187 + $12,474 + $16,200

= $48,177

Now

total cost if offer accepted is

= 9900 × $2.85 + $16,200

= $44,415

savings is

= ($48,177 - $44,415)

= $3,762

ANd, additional revenue from another product is $3,600

Now

total increase in net income is

= $3,600 + $3,762

= $7,362