The Talbot Corporation makes wheels that it uses in the production of bicycles.Talbot's costs to produce 100, 000 wheels annually are: An outside supplier has offered to sell Talbot similar wheels for $1.25 per wheel.If the wheels are purchased from the outside supplier, $15, 000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $45, 000 per year.Direct labor is a variable cost. If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:
A)increase by $35, 000.
B)decrease by $10, 000.
C)increase by $45, 000.
D)increase by $70, 000.

Question

The Talbot Corporation makes wheels that it uses in the production of bicycles.Talbot's costs to produce 100, 000 wheels annually are:  An outside supplier has offered to sell Talbot similar wheels for $1.25 per wheel.If the wheels are purchased from the outside supplier, $15, 000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $45, 000 per year.Direct labor is a variable cost. If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:
A)increase by $35, 000. 
B)decrease by $10, 000. 
C)increase by $45, 000. 
D)increase by $70, 000.

Quizplus · Accepted Answer

The Answer of The Talbot Corporation makes wheels that it uses in the production of bicycles.Talbot's costs to produce 100, 000 wheels annually are:  An outside supplier has offered to sell Talbot similar wheels for $1.25 per wheel.If the wheels are purchased from the outside supplier, $15, 000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $45, 000 per year.Direct labor is a variable cost. If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:
A)increase by $35, 000. 
B)decrease by $10, 000. 
C)increase by $45, 000. 
D)increase by $70, 000.

The Talbot Corporation Makes Wheels That It Uses in the Production