Andrews Industries Manufactures 10,000 Components Per Year If the Component Is Not Produced by Andrews,inspection of Products

question 76

Multiple Choice

Andrews Industries manufactures 10,000 components per year.The manufacturing cost of the components was determined as follows: $$\begin{array} { l r } \text { Direct materials } & \$ 140,000 \\\text { Direct labour } & 230,000 \\\text { Inspecting products } & 50,000 \\\text { Providing power } & 20,000 \\\text { Providing supervision } & 30,000 \\\text { Setting up equipment } & 50,000 \\\text { Moving materials } & 10,000 \\\text { Total } & \$ 530,000\end{array}$$ If the component is not produced by Andrews,inspection of products and provision of power costs will be only 10% of the production costs,moving materials costs and setting up equipment costs will be only 50% of the production costs,and supervision costs will amount to only 40% of the production amount.An outside supplier has offered to sell the component for $45. Suppose Andrews Industries purchases the component from the outside supplier.What will be the effect on Andrew's income?

• A) a $31,000 increase
• B) a $31,000 decrease
• C) a $91,000 increase
• D) a $91,000 decrease

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Definitions:

Cash Dividend Liability

An obligation for a corporation to pay shareholders a declared dividend in cash.

Date of Record

The specific date set by a corporation upon which the company determines the shareholders eligible to receive a dividend or distribution.

Income Tax Expense

The cost of income taxes a company must pay, reported in the income statement as part of its expenses.

Dividends

Funds disbursed by a company to its shareholders, frequently as an allocation of earnings.