Reference no: EM132774646

Problem - Talent Industries manufactures 30.000 components per year. The manufacturing cost of the components was determined to be as follows:

Direct materials $300,000

Direct labor 480,000

Variable manufacturing overhead 180,000

Fixed manufacturing overhead 240,000

Total $1,200,000

Required -

a. Assume that the fixed manufacturing overhead reflects the cost of Talent's manufacturing facility. This facility cannot be used for any other purpose. An outside supplier has offered to sell the component to Talent for $34. If Talent Industries purchases the component from the outside supplier, the effect on income would be a:

b. Assume Talent Industries could avoid $80,000 of fixed manufacturing overhead if it purchases the component from an outside supplier. An outside supplier has offered to sell the component for $34. If Talent purchases the component from the supplier instead of manufacturing it, the effect on income would be a: