Question
Essential Oils produces a lubricant for high performance engines.Alpha1 is an ingredient of the lubricant.Essential Oils currently produces Alpha1 in its own factory.Costs associated with
Essential Oils produces a lubricant for high performance engines.Alpha1 is an ingredient of the lubricant.Essential Oils currently produces Alpha1 in its own factory.Costs associated with the production of 20,000 gallons of Alpha1 are provided at left.None of the fixed costs are avoidable.Chemical Company has offered to supply Alpha1 at a price of$9.43 per gallon.
a.What would be the impact on Essential Oil's pretax income if it outsourced the production of Alpha1 to Chemical Company?Show your work.
b.What would be the impact on Essential Oils pretax income if it outsourced the production of Alpha1 to Chemical Company and Essential Oils were able to rent the space currently used to produce Alpha1 for $75,500 per year?Show your work.
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Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
0130674842, 978-0130674845
