Fredrick Co. is thinking about having one of its products manufactured by a subc

Question

Fredrick Co. is thinking about having one of its products manufactured by a subcontractor Currently, the cost manufacturing 5,000 units follows: If Fredrick can buy 5,000 units from a subcontractor for $130,000 it should: Make the product because current factory overhead is less than $130,000. Make the product because the cost of direct material plus direct labor of manufacturing is less than $130,000. Make the product because factory overhead is a sunk cost Buy the product because total fixed and variable manufacturing cost are greater than $ 130.000 Buy the product because the total incremental cost of manufacturing are greater than $130,000 Chang industries has 2,000 defective units of product that have already cost $ 14 each to produce A salvage company will purchase the defective units as they are for $5 each Chang's product on manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. The incremental income or loss on reworking the units is: $20,000 less $20,000 income $12,000 loss $32,000 income $30,000 income Walters manufactures a specialty food product that can't currently be sold $22 per unit and has 20,000 units on hand. Alternatively, it can be further processed at a cost of 12,000 and converted into 12,000 units of Deluxe and 6,000 units of Super. The selling price of Deluxe and Super are $30 and $20, respectively. The incremental net income of processing further would be: $40,000 $28,000 $18,000 $44,000 $12,000

Explanation / Answer

1. E. Buy the product because the total incremental costs of manufacturing are greater than $130,000.

2. B $20,000 income

3. D. $44,000

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