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Varvara68
1 month ago
11

Billings Company has the following costs when producing 100,000 units: Variable costs $600,000 Fixed costs 900,000 An outside su

pplier has offered to make the item at $4.50 a unit. If the decision is made to purchase the item outside, current production facilities could be leased to another company for $165,000. The net increase (decrease) in the net income of accepting the supplier’s offer is
Business
1 answer:
arsen [3.4K]1 month ago
4 0

Answer:

Increase in income= $1,215,000

Explanation:

Consider the following details:

Billings Company has the ensuing costs when manufacturing 100,000 units: Variable costs total $600,000, fixed costs are $900,000. An external supplier has proposed to produce the item for $4.50 per unit. Should the choice be made to outsource, the current production facilities might be rented out to another company for $165,000.

It is uncertain whether all fixed costs can be attributed to the current production facilities. We will assume they are.

Total current costs = 600,000 + 900,000 = $1,500,000

Purchase cost = 4.5*100,000 - 165,000 = 285,000

Income increase = 1,500,000 - 285,000 = $1,215,000

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