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The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 90,000 wheels annually are: Direct materials Direct labor
The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 90,000 wheels annually are: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $18,000 $27,000 $13,500 $57,000 An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $12,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $32,100 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 $30,600 increase by $18,000 decrease by $1,500 increase by $24,900
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