The Talbot Corporation Makes Wheels That It Uses in the Production

question 36

Multiple Choice

The Talbot Corporation makes wheels that it uses in the production of bicycles.Talbot's costs to produce 100, 000 wheels annually are: An outside supplier has offered to sell Talbot similar wheels for $1.25 per wheel.If the wheels are purchased from the outside supplier, $15, 000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $45, 000 per year.Direct labor is a variable cost. If Talbot chooses to buy the wheel from the outside supplier, then annual net operating income would:

• A)increase by $35, 000.
• B)decrease by $10, 000.
• C)increase by $45, 000.
• D)increase by $70, 000.

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