Business: Wintertime Company produces the handles which are used in the production of their snow shovels. Wintertime’s costs to produce 60,000 handles annually are as follows: Direct materials $30,000 Direct labor 55,000 Variable overhead 25,000 Fixed overhead 40,000 TOTAL $150,000 An outside supplier has offered to sell Wintertime similar handles for $2.25 per handle. If the handles are purchased from the outside supplier, $25,000 of annual fixed factory overhead will continue to be incurred and will be

Wintertime Company produces the handles which

raikespeare5080

07.02.2022

Option C

Explanation:

There will be 15,000 increase in net income for purchasing the handles from outside supplier as it saves us a cost of 15,000

Cost of manufacturing 60,000 handles = $150,000

If the company purchases it from outside = 2.25 per handle x 60,000 handles = $135,000

fixed factory overheads of $ 25,000 will be still there as additional cost

Additional rental income = 25,000

Outsourcing handles = cost to purchase + fixed factory overhead - rental income

Outsourcing handles = 135,000 + 25,000 - 25,000

Outsourcing handles = 135,000

Net Income effect = Cost of manufacturing - Cost to outsouce

Net income effect = 150,000 - 135,000

Net income effect = 15,000 increase

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