Ortiz CoProduces 5,000 Units of Part A12E If Ortiz Buys the Part from an Outside Supplier, $40,000

question 116

Multiple Choice

Ortiz Co.produces 5,000 units of part A12E.The following costs were incurred for that level of production: $$\begin{array} { l r } \text { Direct materials } & \$ 55,000 \\\text { Direct labor } & 160,000 \\\text { Variable overhead } & 75,000 \\\text { Fixed overhead } & 175,000\end{array}$$ If Ortiz buys the part from an outside supplier, $40,000 of the fixed overhead is avoidable.
-If the outside supplier offers a unit price of $68, net income will increase (decrease) by

• A)$(10,000).
• B)$125,000.
• C)$(50,000).
• D)$85,000.

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Definitions:

Implied Warranty

A legal assumption that a product will meet certain standards of quality and reliability even if not explicitly stated.

Merchantability

Relates to the guarantee that a product sold meets reasonable expectations of performance and quality as understood in the marketplace.

Implied Warranty

A legal term for the assurance that a product meets certain quality and reliability standards without being explicitly stated.

Particular Purpose

Refers to a specific goal or use that a buyer makes known to the seller at the time of purchase, affecting the sale's conditions.