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Email CMU WILOH RENDI Coleman Corporation is presently making filters that are used in one of its products. A total of 5,000 units of this
Email CMU WILOH RENDI Coleman Corporation is presently making filters that are used in one of its products. A total of 5,000 units of this particular filter are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Direct materials............... Direct labor......................................... Variable manufacturing overhead......... Supervisor's salary.............................. Depreciation of special equipment ....... Allocated general overhead. Per Unit $3.50 $7.10 $1.30 $5.00 $5.40 $8.60 Coleman can purchase filters from an outside supplier for $24.10 each. If filters are purchased externally, the supervisor's salary and all of the variable costs can be avoided. The special equipment used to make filters has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. If management decides to buy the filters from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income? Net operating income would decrease by $36,000 per year. Net operating income would increase by $36,000 per year. Net operating income would decrease by $34,000 per year. Net operating income would increase by $34.000 per year
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