Answer:
Effect on income= $-117,500
Explanation:
Giving the following information:
Kawai Corporation, which makes and sells 85,000 radios annually, currently purchases the radio speakers it uses for $8.00 each.
Kawai estimates that the cost of materials and labor needed to make speakers would be a total of $6.50 for each speaker. Also, supervisory salaries, rent, and other manufacturing costs would be $170,000. Allocated facility-level costs would be $75,000.
Buy= 85000*8= $680,000
In house:
Production costs= 6.5*85,000 + 75,000= 627,500
Other fixed costs= 170,000
Total cost= $797,500
Effect on income= 680,000 - 797,500= $-117,500
Answer:
Net income will be lowerselected answer correct by $(42,500)selected answer correct
Explanation:
Solution :
Total material and labor cost ( 85,000 x $6.50) $552,500
Add : supervisor salary, rent & manufacturing costs $170,000
Add: Allocated costs ( see note) ----
Total manufacturing cost speakers $722,500
Less : existing purchasing cost ( 85,000 x $8) $680,000
Net income will be lower by $42,500
Note : allocated costs is not an additional costs, this is the cost which is incurred by kawal corporation even if it purchases speakers for market.
