Question

Sunland Company incurs the following costs to produce 11200 units of a subcomponent: Direct materials $9408 Direct labor 12656 Variable overhead 14112 Fixed overhead 16200 An outside supplier has offered to sell Sunland the subcomponent for $2.85 a unit. If Sunland accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3600. The increase (decrease) in net income from accepting the offer would be

Answer 1

Answer:

net increase by =  $7856

Explanation:

given data

costs to produce = 11200 units

Direct materials = $9408

Direct labor = 12656

Variable overhead = 14112

Fixed overhead = 16200

sell Sunland = $2.85

additional income = $3600

solution

we find here first fix overhead buy is  that is

fix overhead buy = 16200 - 3600  = $12600

so purchase cost is here

purchase cost = 11200 × $2.85  = $31920

so net increase = ( Direct materials + Direct labor + Variable overhead + Fixed overhead ) - ( fix overhead buy + purchase cost )       ..................1

net increase = ( 9408 + 12656 + 14112 + 16200 ) - ( 12600 + 31920)

net increase by=  $7856