Question
Star manufacturing makes comforter sets. Start sells the comforters as part of a 4 piece set. Each set includes 1 throw, 2 shams, and 1
Star manufacturing makes comforter sets. Start sells the comforters as part of a 4 piece set. Each set includes 1 throw, 2 shams, and 1 comforter. Star has to make special adjustments to its machine in order to make the throw so it is considering buying it from the supplier who sells the fabric. Currently the cost of making each throw is as follows: Direct Materials $2.80 Direct labor $15.70 Variable overhead $5.70 Fixed overhead $3.10 Star makes and sells 5,000 sets per month. If Star purchases the throws from the supplier, it can save $0.50 of fixed overhead. The supplier has offered to sell each throw for $25. How much would be the change in operating income if Star decides to:
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