Frank Industries Manufactures 200,000 Components Per Year An Outside Supplier Has Offered to Sell the Component for the Components

question 40

Essay

Frank Industries manufactures 200,000 components per year.The manufacturing cost of the components was determined as follows:
$$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 200,000 \\\hline \text { Direct labor } & 320,000 \\\hline \text { Variable manufacturing overhead } & 120,000 \\\hline \text { Fixed manufacturing overhead } & 160,000 \\\hline\end{array}$$

An outside supplier has offered to sell the component for $3.40.If Frank purchases the component from the outside supplier,the manufacturing facilities would be unused and could be rented out for $20,000.Required:
a.If Frank purchases the component from the supplier instead of manufacturing it,the effect on income would be:
b.What is the maximum price Frank would be willing to pay the outside supplier?

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Definitions:

ADH

Antidiuretic hormone, also known as vasopressin, a hormone that regulates the body's retention of water by increasing the concentration of water in the blood.

Urine Osmolality

A measure of the concentration of solutes in urine, which can provide insight into the body's water balance and kidney function.

Urine Volume

The total amount of urine excreted by the kidneys over a specified period, an important indicator of kidney and overall fluid balance.

ADH

Antidiuretic hormone, also known as vasopressin, which helps regulate water balance in the body by increasing the uptake of water in the kidneys.