Solomon Company Manufactures 20,000 Components Per Year Assume That the Fixed Overhead Reflects the Cost of Solomon's

question 13

Essay

Solomon Company manufactures 20,000 components per year. The manufacturing cost per unit of the components is as follows: $\begin{array}{lr}\text { Direct materials } & £ 10 \\\text { Direct labour } & 14 \\\text { Variable overhead } & 6 \\\text { Fixed overhead } & 83 \\\text { Total unit cost } & £ 38\end{array}$
Assume that the fixed overhead reflects the cost of Solomon's manufacturing facility. This facility cannot be used for any other purpose. An outside supplier has offered to sell the component to Solomon for £32.

Required:
a.What is the effect on income if Solomon purchases the component from the outside supplier?
b.Assume that Solomon can avoid £50,000 of the total fixed overhead costs if it purchases the components. Now what is the effect on income if Solomon purchases the component from the outside supplier?

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Definitions:

Contract Violation

An act of breaking the terms or conditions outlined in a contractual agreement.

Unfair Labor Practice

Acts by employers or unions that violate the rights of employees or employers under labor laws, including discrimination, coercion, or refusal to bargain.

Beck Rights

Rights allowing union members to object to the use of their dues for non-bargaining activities, such as political actions.

Political Lobbying

The act of attempting to influence decisions made by officials in the government, often by organizations or individuals with vested interests.