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

Question

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

Quizplus · Accepted Answer

If Clemente accepts the offer, it would save the following costs:Direct materials: $8,400Direct labor: $11,250Variable overhead: $12,600Total savings: $32,250However, Clemente would also lose the additional income of $3,600 from producing the other product.Therefore, the net increase in income from accepting the offer would be:$32,250 - $3,600 = $28,650

Clemente Inc An Outside Supplier Has Offered to Sell Clemente the Subcomponent