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Decision Making on Net Income of a business

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.

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.