Sheridan Industries must decide whether to make-or-buy some of its components. The costs of producing 161000 battery packs for its product are as follows: Direct Materials $13800 Direct Labor $4600 Variable overhead $5520 Fixed overhead $8280 The company has an opportunity to purchase the battery packs for $0.18 per unit, which would eliminate all variable costs, and $1840 of fixed costs. Based on your analysis, what is the net income increase or decrease if the company purchases the battery packs? ○ An increase in net income of $3220. ○ A decrease in net income of $3220. ○ An increase in net income of $6440. O An increase in net income of $5060.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter14: Capital Structure Management In Practice
Section14.A: Breakeven Analysis
Problem 7P
Question

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Sheridan Industries must decide whether to make-or-buy some of its components. The costs of producing 161000 battery packs for its
product are as follows:
Direct Materials
$13800
Direct Labor
$4600
Variable overhead
$5520
Fixed overhead
$8280
The company has an opportunity to purchase the battery packs for $0.18 per unit, which would eliminate all variable costs, and $1840
of fixed costs. Based on your analysis, what is the net income increase or decrease if the company purchases the battery packs?
○ An increase in net income of $3220.
○ A decrease in net income of $3220.
○ An increase in net income of $6440.
O An increase in net income of $5060.
Transcribed Image Text:Sheridan Industries must decide whether to make-or-buy some of its components. The costs of producing 161000 battery packs for its product are as follows: Direct Materials $13800 Direct Labor $4600 Variable overhead $5520 Fixed overhead $8280 The company has an opportunity to purchase the battery packs for $0.18 per unit, which would eliminate all variable costs, and $1840 of fixed costs. Based on your analysis, what is the net income increase or decrease if the company purchases the battery packs? ○ An increase in net income of $3220. ○ A decrease in net income of $3220. ○ An increase in net income of $6440. O An increase in net income of $5060.
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