Question

10. Coronado Industries incurs the following costs to produce 9100 units of a subcomponent:

Direct materials	$7644
Direct labor	10283
Variable overhead	11466
Fixed overhead	16200

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

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

$458.

$6458.

$(5639).

$(1724).

11. Bramble Corp. incurs the following costs to produce 11900 units of a subcomponent:

Direct materials	$9996
Direct labor	13447
Variable overhead	14994
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

$922.

$(3600).

$8122.

$(922).

13. Sheridan Company, Inc.currently manufactures a wicket as its main product. The costs per unit are as follows:

Direct materials and direct labor	$13
Variable overhead	5
Fixed overhead	8
Total	$26

The fixed overhead is an allocated common cost. How much is the relevant cost of the wicket?

$18

$21

$39

$26

Please answer all 3 questions. Thank you!

Answer 1

Solution:

10. $6,458

11. $8,122

13. $18

Explanation:

Direct materials	7,644
Direct labour	10,283
Variable overhead	11,466
Avoidable fixed	3,000
Total costs to make	32,393

Total cost to buy = 9100 x 2.85 = 25,935

Net Income increase = 32393 - 25935 = 6,458

11.

Total cost = Direct materials + direct labour + variable overehad =9996 + 13447 + 14994 = 38,437

Cost per unit = 38437/11900 = 3.23

Difference = 3.23 - 2.85 = 0.38

0.38 x 11900 = 4522

Net Income = 4522 + 3600 = 8122

13.

Direct materials + variable overhead = 13 + 5 = 18