Question

Assume that 40% of the fixed overhead can be avoided if part C62 is not made by Macomb. Should Macomb purchase the part from the outside supplier? (a) No, income will decrease by $10,500. income will decrease by $7,500. (c) Yes, income will increase by $7,500. (d) Yes, income will increase by $10,500. 14. An unfavorable direct labor quantity variance may be caused by: (a) Paying workers higher wages than expected. (b) Using higher skilled workers to perform work than those called for by the standards. Worker fatigue or carelessness. (d) Higher pay rates mandated by union contracts. 15. The Freeport Utensil Company manufactures kitchen utensils. The company is currently producing below full capacity. A company has approaches Freeport with an offer to buy 20,000 utensils at $0.75 each. Freeport sells it utensils wholesale for $0.85 and the average cost per unit to Freeport is $0.8 of which $0.12 is fixed cost and will not change if the order is accepted. Freeport were to accept the offer from the company, what would be the effe on Freeport's operating income? (a) $ 400 increase. (b) $ 800 increase. @ $1,600 decrease. (d) $2,000 decrease.

Answer 1

direct material	4.00
direct labour	2.00
variable overhead	1.50
fixed overhead	1.80
total	9.30

working note

fixed overhead

3.00*60%=1.80

40% is avoided hence we use 60%

9.30*$8=74.4

macomb should choose to purchase the part from outside supplier as the income is increased to 7500

hence option (c) is the right answer