Use the following information for questions
Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: $$\begin{array} { l l }
\text { Direct materials } & \$ 8,400 \
\text { Direct labor } & 11,250 \
\text { Variable overhead } & 12,600 \
\text { Fixed overhead } & 16,200
\end{array}$$ An outside supplier has offered to sell Clemente the subcomponent for $2.85 a unit.
-If Clemente accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3,600. The increase (decrease) in net income from accepting the offer would be
A) $150.
B) $7,350.
C) $(150).
D) $(3,600).

Question

Use the following information for questions 
Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: $$\begin{array} { l l } 
\text { Direct materials } & \$ 8,400 \
\text { Direct labor } & 11,250 \
\text { Variable overhead } & 12,600 \
\text { Fixed overhead } & 16,200
\end{array}$$ An outside supplier has offered to sell Clemente the subcomponent for $2.85 a unit.
-If Clemente accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3,600. The increase (decrease) in net income from accepting the offer would be
A) $150.
B) $7,350.
C) $(150).
D) $(3,600).

Quizplus · Accepted Answer

The cost to produce the subcomponent internally is $4.85 per unit ($48,450 total), while buying from the supplier costs $2.85 per unit ($28,500 total). The savings from buying is $19,950. Adding the additional income of $3,600 from using the capacity for another product, the net increase in income is $23,550 - $16,200 (fixed overhead not saved) = $7,350.

Use the Following Information for Questions Clemente Inc An Outside Supplier Has Offered to Sell Clemente the Subcomponent

Use the Following Information for Questions
Clemente Inc An Outside Supplier Has Offered to Sell Clemente the Subcomponent