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Coronado Industries incurs the following costs to produce 10500 units of a subcomponent

Coronado Industries incurs the following costs to produce 10500 units of a subcomponent:

Direct materials$8800
Direct labor11750
Variable overhead13000
Fixed overhead18000

An outside supplier has offered to sell Coronado the subcomponent for $2.65 a unit. No fixed overhead costs are avoidable.

If Coronado 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:

Save $9,325

Explanation

Buy
Buying cost    27,825
Incremental income    (3,600)
Fixed Cost    18,000
Total Cost    42,225

Cost Saving = (8,800 + 11,750 + 13,000 +18,000) – 42,225 = $9,325

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