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The Ross Unlimited, Inc. makes reels for their fly fishing rods. Ross' costs to produce 220,000 these reels on an annual basis are: Direct materials
The Ross Unlimited, Inc. makes reels for their fly fishing rods. Ross' costs to produce 220,000 these reels on an annual basis are: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $44,000 $66,000 $33,000 $82,000 Ozark is a new company just formed that makes nothing but these reels and they claim they are superior to the ones Ross manufactures. Ozark is offering to sell Ross these reels for $0.80 per reel. If Ross buys the reels from Ozark then $37,000 of annual fixed overhead could be avoided. Furthermore, the warehouse now being used to manufacture those reels can be rented out to Blue Cat Company for $93,400 per year. Direct labor is a variable cost. If the reels are purchased from Ozark, then Ross' annual net operating income would: increase by $37,600 increase by $44,000 decrease by $12,000 increase by $81,400
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