The Talbot Corporation Makes Wheels That It Uses in the Production

question 3

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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Definitions:

Third Person

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Formal Style

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