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    Decision Making on Net Income of a business

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    Please help with the following problem. Please show your steps.

    Express Corporation can either manufacture a component part of its product or buy the part from an outside supplier. The cost of manufacturing one unit of the component part is Direct Materials $1 Direct Labor $1.50 Variable Overhead $0.75 Fixed Overhead (allocated) $0.90 = $4.15. The outside supplier had offered to sell the part to Express Corp for $3.95 per unit. Annual usage of the part is 200,000 units. If Express buys the part the vacated factory space can be rented out for $7,000 per month. Compute the change in Express Corporations 2007 Net Income if it decides to buy the part.

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    Solution Preview

    Consider if the Express decide to buy what changes in the costs would take place. Think of incremental changes in the cost

    Variable cost:
    Savings in Direct material = -$1.00 (the plus sign ...

    Solution Summary

    In the following posting, a problem involving decision making on annual net income is analyzed. Step by step calculations are given in the solution.