Winton Corporation Currently Makes Rolls for Deli Sandwiches It Produces

question 74

Multiple Choice

Winton Corporation currently makes rolls for deli sandwiches it produces. It uses 30,000 rolls annually in the production of deli sandwiches. The costs to make the rolls are given below: $\begin{array}{ll}\text { Materials } & \$ 0.24 \text { per roll } \\\text { Labor } & \$ 0.40 \text { per roll } \\\text { Variable overhead } & \$ 0.16 \text { per roll } \\\text { Fixed overhead } & \$ 0.20 \text { per roll }\end{array}$ A potential supplier has offered to sell Winton the rolls for $0.90 each. If the rolls are purchased, 30% of the fixed overhead could be avoided. If Winton accepts the offer, what will the effect on profit be?

• A) $1,200 decline in profit
• B) $1,200 increase in profit
• C) $3,000 decline in profit
• D) $3,000 increase in profit

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Definitions:

Government Spending Cuts

Government Spending Cuts involve the reduction of public sector expenditure in an attempt to balance budgets and reduce deficits.

Multiplier

In economics, it refers to the factor by which gains in total output are greater than the change in spending that caused it.

GDP

The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

Spending Changes

Alterations in the amount of money that consumers, businesses, and governments expend on goods and services.