The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot’s costs to produce 230,000 wheels annually are:
Variable manufacturing overhead$34,500
Fixed manufacturing overhead$73,000
An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $28,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $70,900 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:
Noreen 4e Recheck 2017-16-03
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