Question

Bramble Corp. has the following costs when producing 100000 units:

Variable costs	$600000
Fixed costs	900000

An outside supplier has offered to make the item at $4.50 a unit. If the decision is made to purchase the item outside, current production facilities could be leased to another company for $159000. The net increase (decrease) in the net income of accepting the supplier’s offer is

$(9000).

$291000.

$309000.

$864000.

Marigold Corp. spent $4800 to produce Product 89, which can be sold as is for $6000, or processed further incurring additional costs of $1800 and then be sold for $8400. Which amounts are relevant to the decision about Product 89?

$4800, $6000, and $1800

$4800, $6000, and $8400

$6000, $1800, and $8400

$4800, $6000, $1800 and $8400

Answer 1

1)

Total cost to make = $600,000 + $900,000

= $1,500,000

Total cost to buy = (100,000 X $4.50) + $900,000 - $159,000

= $1,191,000

Total cost to buy is less than total cost to make.

Accepting the supplier’s offer would increase the net operating income.

= $1,500,000 - $1,191,000

= $309,000

3rd option

2)

All the amount given in the question are relevant when deciding whether Product 89 should be sold as it is or further processed.

$4800, $6000, $1800 and $8400

4th option