Question
Wintertime Company produces the handles which are used in the production of their snow shovels. Wintertimes costs to produce 80,000 handles annually are as follows:
Wintertime Company produces the handles which are used in the production of their snow shovels. Wintertimes costs to produce 80,000 handles annually are as follows:
Direct materials $25,000
Direct labor 42,000
Variable overhead 28,000
Fixed overhead 65,000
TOTAL $160,000
An outside supplier has offered to sell Wintertime similar handles for $1.50 per handle. If the handles are purchased from the outside supplier, $45,000 of annual fixed factory overhead will continue, and the facilities now being used to make the handles could be rented to another company for $40,000 per year.
If Wintertime chooses to buy the handles from the outside supplier, then the change in annual net income due to accepting the offer is a:
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