Question

Mercedes-Benz incurs the following costs to produce 10,000 units of an automobile part: Direct materials $8,400 Direct labor 11,250 Variable overhead 12,600 Fixed overhead 16,200 An outside supplier has offered to sell Mercedes-Benz the part for $2.85 a unit. < 13. If Mercedes-Benz accepts the offer, by how much will net income increase (decrease)? A) $19,950 B) $(8,850) C) $(2,850) D) $3,750

Answer 1

X for 13 A B C D E F G change statement of relevant costs buy from produce outside internally supplier direct materials $ 8,400 direct labor $ 11,250 variable overhead $ 12,600 purchase price $ 28,500 total relevant costs $32,250 $ 28,500 | $3,750 the net income will increase by $3,750 reason - because the total relevant costs are decreasing by $3,750 when the offer is accepted hence, the correct answer is D) $3,750

for formulas and calculations, refer to the image below -

B2 | fc x C 13 D A B E statement of relevant costs produce internally buy from outside supplier change direct materials 8400 direct labor 11250 variable overhead 12600 purchase price total relevant costs |=SUM(D4:07) =2.85*10000 =SUM(E4:E7) =D8-E8 the net income will increase by $3,750 reason - because the total relevant costs are decreasing by $3,750 wher the offer is accepted hence, the correct answer is D) $3,750

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