Austin Wool Products purchases raw wool and processes it into yarn. The spindles

Question

Austin Wool Products purchases raw wool and processes it into yarn. The spindles of yarn can then be sold directly to stores or they can be used by Austin Wool Products to make afghans. Each afghan requires one spindle of yarn. Current cost and revenue data for the spindles of yarn and for the afghans are as follows:

references

43.

value:
2.00 points

MC Qu. 62 If Austin chooses to produce 4,000 afghans...

If Austin chooses to produce 4,000 afghans each month, the change in the monthly net operating income as compared to selling 4,000 spindles of yarn is:

[The following information applies to the questions displayed below.]

Austin Wool Products purchases raw wool and processes it into yarn. The spindles of yarn can then be sold directly to stores or they can be used by Austin Wool Products to make afghans. Each afghan requires one spindle of yarn. Current cost and revenue data for the spindles of yarn and for the afghans are as follows:

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Net Operating Income (When Splindles are Sold)

Net Operating Income (When Afghans are Produced and Sold)

Net Operating Income would Increase by 24000 (32000 - 8000), if Afghans are produced.

Option D (24000 Increase) is the correct answer.

Thanks.

Sales 48000 Less Variable Production Cost 32000 Fixed Production Cost 8000 Net Operating Income 8000

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