Harris Company Uses 5,000 Units of Part AA1 Each Year

question 46

Multiple Choice

Harris Company uses 5,000 units of part AA1 each year.The cost of manufacturing one unit of part AA1 at this volume is as follows: $$\begin{array} { l r } \text { Direct materals } &\$10.00 \\\text { Direct labaus } & 14.00 \\\text { Variable overhead } & 6.00 \\\text { Fixed averhead } & 4.00 \\\text { Total } & \$ 34.00\end{array}$$ An outside supplier has offered to sell Harris Company unlimited quantities of part AA1 at a unit cost of $31.00.If Harris Company accepts this offer,it can eliminate 50 percent of the fixed costs assigned to part AA1.Furthermore,the space devoted to the manufacture of part AA1 would be rented to another company for $24,000 per year.If Harris Company accepts the offer of the outside supplier,what will be the effect on annual profits?

• A)increase by $2,500
• B)increase by $14,500
• C)increase by $22,000
• D)increase by $29,000

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Definitions:

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The process of resolving private disputes through the court system, as opposed to criminal proceedings.

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A designated area where employees and visitors can park their vehicles while at a business premises.

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An error that affects the outcome of a case or legal proceeding, leading to an unfair advantage or disadvantage.