Question

Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: Direct materials $8,400 Direct labor 11,200 Variable overhead 12,600 Fixed overhead 16,200 An outside supplier has offered to sell Clemente 10,000 units of the subcomponent for $2.85 a unit. If Clemente could avoid $3,000 of fixed overhead by accepting the offer, net income would increase (decrease) by

Answer 1

$6700

Step-by-step explanation:

Direct materials $8,400 + Direct labor 11,200 + Variable overhead 12,600 + Fixed overhead 16,200

= 48400 total

2.85 x 10000= 28500

Fixed overhead 16,200 - $3,000

= 13200

28500 + 13200 = 41700

Change in net income = 48400 - 41700

= 6700

The net income of the company would increase by $6700