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Bonita Industries incurs the following costs to produce 10400 units of a subcomponent: Direct materials $8736...

Bonita Industries incurs the following costs to produce 10400 units of a subcomponent:

Direct materials $8736
Direct labor 11752
Variable overhead 13104
Fixed overhead 16200


An outside supplier has offered to sell Bonita the subcomponent for $2.85 a unit.

If Bonita could avoid $3000 of fixed overhead by accepting the offer, net income would increase (decrease) by

$(6016).
$6952.
$952.
$(3856).
Business   Accounting   
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Answer #1
Direct materials $8,736
Direct labor $11,752
Variable overhead $13,104
Fixed overhead $16,200
Total cost $49,792

If Bonita industries make the product, the total cost to make the product is $49,792

If Bonita industries buys the product, then total cost is

Total cost = (Units * Buying price) + Unavoidable fixed costs

Unavoidable fixed cost = Total fixed cost - Avoidable fixed cost

= $16,200 - $3,000

= $13,200

Total cost = (10,400 * $2.85) + $13,200

= $29,640 + $13,200

= $42,840

Net income increases by ($49,792 - $42,840) $6,952.

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