Question
1. You make component X in-house at a cost of $16 per unit, which consists of $2 direct labor per unit, $7 direct materials per
1. You make component X in-house at a cost of $16 per unit, which consists of $2 direct labor per unit, $7 direct materials per unit, $2 fixed overhead per unit, and $5 variable overhead per unit. You need 1,000 units of X per month. An outside supplier has offered to sell component X to you at $12 per unit. If you outsource the production of X to the supplier, how much will your operating income change in the short term?
A. Decrease by $4,000 per month
B. Decrease by $4,000 per month
C. Increase by $2,000 per month
D. Decrease by $2,000 per month
2. The production manager rather than the purchasing manager is held responsible for an unfavourable materials price variance if it is the result from which of the following?
A. Purchase of low-quality materials.
B. Problems with labour efficiency.
C. Do not maintain a good relationship with the supplier.
D. A rush order because of problems in production process.
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