Reference: 09-11
Rodgers Company Makes 27,000 Units of a Certain

question 27

Multiple Choice

Reference: 09-11
Rodgers Company makes 27,000 units of a certain component each year for use in one of its products. The cost per unit for the component at this level of activity is as follows: $$\begin{array} { | l | l | } \hline \text { Direct materials } & \$ 4.20 \\\hline \text { Direct labour } & \$ 12.00 \\\hline \text { Variable manufacturing overhead } & \$ 5.80 \\\hline \text { Fixed manufacturing overhead } & \$ 6.50 \\\hline\end{array}$$ Rogers has received an offer from an outside supplier who is willing to provide 27,000 units of this component each year at a price of $25 per component. Assume that direct labour is a variable cost.
-Assume that there is no other use for the capacity now being used to produce the component and the total fixed manufacturing overhead of the company would be unaffected by this decision. If Rogers Company purchases the components rather than making them internally, what would be the impact on the company's annual net operating income?

• A)$81,000 decrease.
• B)$94,500 increase.
• C)$124,000 increase.
• D)$237,600 decrease.

Prepare and analyze trial balances and identify errors.

Understand the impact of business transactions on the financial statements.

Identify account types and their normal balances.

Calculate financial ratios and understand their implications.

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Definitions:

Promotion Mix

The combination of promotional tools used by an organization, including advertising, sales promotion, public relations, personal selling, and direct marketing.

Objective And Task

A method in advertising and marketing involving the setting of objectives and determining the tasks necessary to achieve them.

Budgeting Methods

Financial strategies used to plan and allocate resources, often income and expenditure, over a specified period.

Advertising Campaign

A coordinated series of promotional efforts, utilizing various media channels, aimed at generating interest or sales for a product or service.