Please explain answer. Altertech Inc. manufactures a product that contains a cir

Question

Please explain answer.

Altertech Inc. manufactures a product that contains a circuit board. The company has always purchased this circuit board from a supplier for $166.0 each. Altertech recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers) to begin manufacturing the circuit board instead of buying it. The company prepared the following per unit cost projections of making the circuit board, assuming that overhead is allocated to the part at the normal predetermined overhead rate of 115% of direct labor cost. The required volume of output to produce the circuit boards will not require any incremental fixed overhead. Incremental variable overhead cost is $18.0 per circuit board. What is the effect on income if Altertech decides to make the circuit boards? Income will increase by $34.0 per unit. Income will decrease by $104.0 per unit. Income will increase by $16.0 per unit. Income will decrease by $16.0 per unit. Income will increase by 104.0 per unit.

Explanation / Answer

Answer: Income will increase by $16 per unit.

Relevant cost=$12+$120+$18=$150 per unit

Effect on income=$166-$150=$16 per unit

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