The Wise Company manufactures a PT I Component that is used to make several of its products.The managerial accountant reported monthly production costs to produce 1,100 units of PT I Component included:

The managerial accountant estimates that 10% of the fixed overhead costs assigned to PT I Component will no longer be incurred if the company purchases the PT I Component from an outside supplier at $41.50 per unit.
If the manager at Wise Company accepts the offer from the outside supplier,what are the monthly avoidable costs,or those costs that will no longer be incurred? What is the monthly operating income if the manager at Wise Company purchases 1,000 units of PT I Component from an outside supplier? What is the maximum price that the manager at Wise Company should pay to the outside supplier?
A)$40,155;$1,650 decrease;$42.00
B)$41,155;$1,650 increase;$42.06
C)$42,155;$1,655 decrease;$42.10
D)$43,155;$1,655 increase;$43.16
E)$44,155;$1,670 decrease;$43.26

Question

The Wise Company manufactures a PT I Component that is used to make several of its products.The managerial accountant reported monthly production costs to produce 1,100 units of PT I Component included:

The managerial accountant estimates that 10% of the fixed overhead costs assigned to PT I Component will no longer be incurred if the company purchases the PT I Component from an outside supplier at $41.50 per unit.
If the manager at Wise Company accepts the offer from the outside supplier,what are the monthly avoidable costs,or those costs that will no longer be incurred? What is the monthly operating income if the manager at Wise Company purchases 1,000 units of PT I Component from an outside supplier? What is the maximum price that the manager at Wise Company should pay to the outside supplier?
A)$40,155;$1,650 decrease;$42.00 
B)$41,155;$1,650 increase;$42.06 
C)$42,155;$1,655 decrease;$42.10 
D)$43,155;$1,655 increase;$43.16 
E)$44,155;$1,670 decrease;$43.26

Quizplus · Accepted Answer

D)Avoidable costs: [$22,000 + $5,100 + $15,050 + ($10,050 × 10%)] = $43,155
Monthly operating income: [Avoidable costs: $43,155 - ($41.50 × 1,000 units)= $1,655 increase
Maximum price to purchase from outside supplier: [($43,155 / 1,000)] = $43.16 (rounded)

The Wise Company Manufactures a PT I Component That Is