Assume That If the Component Is Purchased from the Outside

question 134

Multiple Choice

Assume that if the component is purchased from the outside supplier,$35,100 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the component would be rented to another company for $64,800 per year.If Rogers chooses to buy the component from the outside supplier under these circumstances,then the impact on annual net operating income due to accepting the offer would be:

• A) $18,900 decrease.
• B) $18,900 increase.
• C) $21,400 decrease.
• D) $21,400 increase.

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Definitions:

Compounded Annually

Interest on an investment or loan calculated once a year, where each year's interest payment includes interest on the original principal and on the accumulated interest of previous periods.

Market Rate

The prevailing rate or price at which goods, services, or securities are traded in a competitive marketplace.

Bond Issue

The method through which a corporation or governmental entity generates capital by issuing bonds to investors.

Selling Price

The amount of money a buyer pays to acquire a product or service from a seller.