Use the Following Information for Questions
Clemente Inc An Outside Supplier Has Offered to Sell Clemente the Subcomponent

question 89

Multiple Choice

Use the following information for questions
Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: $$\begin{array} { l l } \text { Direct materials } & \$ 8,400 \\\text { Direct labor } & 11,250 \\\text { Variable overhead } & 12,600 \\\text { Fixed overhead } & 16,200\end{array}$$ An outside supplier has offered to sell Clemente the subcomponent for $2.85 a unit.
-If Clemente accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3,600. The increase (decrease) in net income from accepting the offer would be

• A) $150.
• B) $7,350.
• C) $(150).
• D) $(3,600).

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Definitions:

Interest Rate

The rate at which a certain amount of money is charged for borrowing it, usually specified as an annual figure.

Income

Regular financial receipts from employment or capital investments.

Undertake Investment

The act of committing money or capital to an endeavor with the expectation of obtaining additional income or profit.

Present Discounted Value

The present worth of a future amount of money or sequence of cash flows, calculated using a given interest rate.