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    Impact on operating income

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    NEC Company produces 8,000 part each year, which are used in the production of one of its products. The unit product cost of part is $36, computed as follows:

    Variable Production Costs .......... $16
    Fix Production Costs ............... 20
    Unit Product Cost .................. $36

    The parts can be purchased from an outside supplier for only $28 each. the space in which the parts are now produce would be idle and fixed production costs would be reduced by one-forth. If the parts are purchased from the outside supplier, the annual impact on the company's operating income will be:

    a) $24,000 increase
    b) $56,000 decrease
    c) $56,000 increase
    d) $24,000 decrease

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    https://brainmass.com/business/accounting/impact-on-operating-income-169227

    Solution Preview

    NEC Company produces 8,000 part each year, which are used in the production of one of its products. The unit product cost of part is $36, computed as follows:

    Variable Production Costs .......... $16
    Fix Production Costs ............... ...

    Solution Summary

    Calculates the the annual impact on the company's operating income if parts are purchased from the outside supplier.

    $2.19

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