Reference no: EM131804044

Question - Wilder Inc. manufactures a product which contains a small computer chip. The company has always purchased this computer chip from a supplier for $110 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 $32

Direct Labor 40

Overhead (fixed and 60 variable) - Total $132

The volume of output to produce the computer chip will not require any incremental fixed overhead. Incremental variable overhead cost is $42 per computer chip. What is the effect on income if Wilder decides to make the computer chips?

A) Income will increase by $38 per unit.

B) Income will decrease by $38 per unit.

C) Income will decrease by $4 per unit.

D) Income will increase by $4 per unit.

E) Income will increase by $44 per unit.