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Genent's Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1070 units are as follows: Direct materials $41,000
Genent's Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1070 units are as follows: Direct materials $41,000 Direct labor 7500 Variable overhead costs 29,500 Fixed overhead costs 20000 Total costs $98.000 It is estimated that 8% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Genent's Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit If Genent's Engine Company purchases 1070 TE456 parts from the outside supplier per month, then its monthly operating income will increase by $21,783 decrease by $21,783 increase by $32,483 decrease by $32,483
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