Question

W.T. Ginsburg Engine Company manufactures part ACT31107 used in several of its engine models. Monthly production costs for 1,040 units are as follows: Direct materials Direct labor Variable overhead costs Fixed overhead costs Total costs $46,000 11,500 34,500 23,000 $115,000 It is estimated that 10% of the fixed overhead costs assigned to ACT31107 will no longer be incurred if the company purchases ACT31107 from the outside supplier. W.T. Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit If W.T. Ginsburg Engine Company purchases 1,040 ACT31107 parts from the outside supplier per month, then its monthly operating income will ses 1040 ACT3107 parts from the outside suppler per month, then its monthly operating income will _— _(Round any intermediary calculations and your ina answer to the nearest cont) (Round any intermediary calculations and your final answer to the nearest cent.) O A. decrease by $20,340 O B. decrease by $4,240 OC. increase by $20,340 OD. increase by $4,240

Answer 1

	Make	Buy	Net Income Increase (Decrease)
Direct material	$    46,000		$                                                      46,000
Direct labor	$    11,500		$                                                      11,500
Variable overhead	$    34,500		$                                                      34,500
Fixed manufacturing overhead	$    23,000	$23,000*90% = $20,700	$                                                        2,300
Purchase cost		1,040*$94.75 = $98,540	$                                                   (98,540)
Total Cost	$ 115,000	$                               119,240	$                                                      (4,240)

Answer is B. Decrease by $4,240

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