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The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 150,000 wheels annually are: An outside supplier has
The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 150,000 wheels annually are: An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier. $18,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $46, 500 per year. Direct labor is a variable cost. If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would: increase by $30,000 increase by $46, 500 decrease by $42,000 increase by $4, 500
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