Question
Goedl, Inc. produces37,000 fans to be used in the productions of its cooling machines. The average cost per fan at this level of activity is
Goedl, Inc. produces37,000 fans to be used in the productions of its cooling machines. The average cost per fan at this level of activity is as follows: |
Direct materials | $9.60 |
Direct labor | $8.60 |
Variable manufacturing overhead | $3.50 |
Fixed manufacturing overhead | $4.45 |
An outside supplier will sell Goedl, Inc. this part for $24.25 per fan. If Goedl purchases the fans from an outside supplier none of the fixed manufacturing overhead would be avoidable and there would be no other use for the facilities. If Goedl decides to continue making the fan, how much higher or lower will the company's net operating income be than if the fans are purchased from the outside supplier? Assume that direct labor is a variable cost in this company.
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