6. Halley Company produces 1,400 parts each year that are used in one of its pro

Question

6. Halley Company produces 1,400 parts each year that are used in one of its products. The unit product cost of this part is: Variable manufacturing cost Fixed manufacturing cost Unit product cost $ 9.10 4.20 13.30 The part can be purchased from an outside supplier for $9.40 per unit. If the part is purchased from the outside supplier, two-thirds of the fixed manufacturing costs can be eliminated. The effect on net operating income as a result of purchasing the part would be a: $5,460 increase $5,500 decrease. $1,500 decrease. $3,500 increase

Explanation / Answer

6

variable manufacturing cost 9.10

avoidable fixed manufacturing overhead (4.2 * (2/3) ) = 2.8

total = 11.9

11.9 - 9.40 = 2.5

1400 * 2.5 = 3500

so answer is $3500 increase

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