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Use the following information to answer questions 19 and 20 Talbot company makes wheels that it uses in the production of children's wagons. Talbot's costs

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Use the following information to answer questions 19 and 20 Talbot company makes wheels that it uses in the production of children's wagons. Talbot's costs to produce 200,000 wheels annually are as follows: Direct materials $40,000 Direct labour $60,000 Variable manufacturing overhead $30,000 Fixed manufacturing overhead $70,000 TOTAL $200,000 An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased om the outside supplier, $25,000 of annual xed manufacturing overhead would be avoided and the facilities now being used to make the wheels would be rented to another company for $55,000 per year. 19. If Talbot chooses to buy the wheel from the outside supplier, then the change in annual net operating income is a: A $5,000 decrease B $30,000 decrease C $40,000 increase D $50,000 increase E $70,000 increase 20. What is the highest price that Talbot could pay the outside supplier for each wheel and still be economically indifferent between making or buying the wheels? A $1.30 B $0.95 C $1.15 D $1.00 B $1.05

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