Clemente inc. incurs the following costs to produce 10,000 units of a subcomponent:
direct materials $8,400
direct labor 11,250
variable overhead 12,600
fixed overhead 16,200
an outside supplier has offered to sell clemente the subcomponent for $2.85 a unit. if clemente accepts the offer, by how much will net income increase (decrease)? group of answer choices
$3,750
$19,950
$(2,850)
$(8,850)

Option (A) is correct.

Explanation:

Total Cost of Manufacturing:

= Direct Material + Direct labor + Variable overhead + Fixed overhead

= $8,400 + $11,250 + $12,600 + $16,200

= $48,450

Variable Cost Per Unit = ($8,400 + 11,250 + 12,600) ÷ 10,000

                                     = 32,250 ÷ 10,000

                                     = 3.225

Offer from Outside Supplier = $2.85 Per Unit

Difference = 3.225 - 2.85

                  = $0.375 Per Unit

Total Difference = 0.375 x 10,000

                           = $3,750

The Increase in net Income from accepting the offer is $3,750.