Neti Income Increase, Fixed Overhead
Clemente Inc. incurs the following costs to produce 10,000 untis of a subcomponent
Direct Materials: $28,000
Direct Labor: $37,500
Variable Overhead: $42,000
Fixed Overhead: $54,000
An outside supplier has offerend to sell Clemente the subcomponent for $9.50 a unit.
1. If Clemente accepts the offer, by how much will net income increase (decrease)?
2. If Clement could avoid $10,000 of fixed overhead by accepting the offer, net income would increase (decrease) by how much?
3. If Clemente accepts the offer, it could use the production capacity to produce another product that would generate additional income of $12,000. The increase (decrease) in net income from accepting the offer would be how much?
Thanks.