Question

Swifty Corporation incurs the following costs to produce 8600 units of a subcomponent: Direct materials $7224 Direct labor 9718 Variable overhead 10836 Fixed overhead 16200 An outside supplier has offered to sell Swifty the subcomponent for $2.85 a unit. If Swifty could avoid $3000 of fixed overhead by accepting the offer, net income would increase (decrease) by

Answer 1

increased by $6,268

Step-by-step explanation:

The computation of the change in the net income is shown below:

Particulars Make Buy Difference

Direct materials $7,224 $0 $7,224

Direct labor $9,718 $0 $9,718

Variable overhead $10,836 $0 $10,836

Fixed overhead $16,200 $13,200 $3,000

Purchase price

(8,600 units × $2.85) $0 $24,510 -$24,510

Change in income $43,978 $37,710 $6268

Net income would increased by $6,268 if the order is accepted