Wilder Inc. manufactures a product that contains a small
computer chip. The company has always purchased this computer chip
from a supplier for $165 each. Wilder recently upgraded its own
manufacturing capabilities and now has enough excess capacity
(including trained workers) to begin manufacturing the computer
chip instead of buying it. The company prepared the following per
unit cost projections of making the computer chip, assuming that
overhead is allocated to the part at the normal predetermined
overhead rate of 150% of direct labor cost.
| Direct materials |
$64.00 |
| Direct labor |
80.00 |
| Overhead (fixed and variable) |
120.00 |
| Total |
$264.00 |
The volume of output to produce the computer chip will not
require any incremental fixed overhead. Incremental variable
overhead cost is $37 per computer chip. What is the effect on
income if Wilder decides to make the computer chips?
|
|
Income will increase by $99.00 per unit. |
|
Income will decrease by $16.00 per unit. |
|
Income will decrease by $99.00 per unit. |
|
Income will increase by $16.00 per unit. |
|
Income will increase by $21.00 per unit. |
B) Income will decrease by $16.00 per unit.
