Barnes Company makes 10,000 units of Part A per year. The product cost of Part A...

Barnes Company makes 10,000 units of Part A per year. The product cost of Part A is provided as follows:

Direct materials………………………… $30/unit

Direct labor ……………………………..$15/unit

Variable manufacturing overhead……….$ 5/unit

Cost of manager who will be fired if Part A is no longer produced internally ...$50,000

Depreciation per year of special equipment (with no resale value) ……......... $40,000

Other fixed manufacturing overhead for the whole company ….. ………….$100,000

The ‘Other fixed manufacturing overhead for the whole company’ will not be affected by the decision to make or buy Part A.

(1) An outside supplier has offered to sell the company all of these parts it needs for $57 a unit. What will be the change in Barnes Company’s net income if it accepts this offer?

(2) Now, if the company accepts this offer as described in question (1), the facilities now being used to make Part A could be used to make 10,000 units of Part B per year. The contribution margin on Part B would be $5/unit. What will be the change in Barnes Company’s net income if it accepts this offer as described in question (1)?

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ekkarill92 answered 1 year ago

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