Question
Lucas Inc. currently manufactures 1,000 subcomponents per month in one of its factories. The unit costs to produce the subcomponents are: Per unit Direct materials
Lucas Inc. currently manufactures 1,000 subcomponents per month in one of its factories. The unit costs to produce the subcomponents are:
| Per unit | |
| Direct materials | $50 |
| Direct labour | 150 |
| Variable manufacturing overhead | 75 |
| Fixed manufacturing overhead | 100 |
| Total unit cost | $375 |
Lucas Inc. is considering purchasing the subcomponents from an outside supplier, who normally charges $300 per unit. The supplier also has an "Exclusive Buyer's Club" which costs $20,000 per month to join, but whose members can purchase the subcomponents for $250 per unit. Fixed overhead is not avoidable. If Lucas Inc. chose to purchase the subcomponents using the cheaper of the two buying options, what would be the effect on profit?
| A. | Increase $5,000 | |
| B. | Decrease $5,000 | |
| C. | Increase $20,000 | |
| D. | Decrease $25,000 |
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Corporate Financial Accounting
Authors: Carl S. Warren, James M. Reeve, Jonathan E. Duchac
12th edition
1305041399, 1285078586, 978-1-133-9524, 9781133952428, 978-1305041394, 9781285078588, 1-133-95241-0, 978-1133952411
