Frannie Fans currently manufactures ceiling fans that include remotes to operate them. The current cost to manufacture 10,320 remotes is as follows: Direct materials Direct labor Variable overhead. Fixed overhead Total Cost $ 67,080 $ 56,760 $ 30,960 $ 51,600 $ 206,400 Frannie is approached by Lincoln Company, which offers to make the remotes for $18 per unit. Required: 1. Compute the difference in cost per unit between making and buying the remotes if none of the fixed costs can be avoided. What is the change in net income, if Frannie Fans buys the remotes? 2. Compute the difference in cost per unit between making and buying the remotes if $20,640 of the fixed costs can be avoided. What is the change in net income, if Frannie Fans buys the remotes? 3. What is the change in net income if fixed cost of $20,640 can be avoided and Frannie could rent out the factory space no longer in use for $20,640?

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Chapter5: Process Costing
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Frannie Fans currently manufactures ceiling fans that include remotes to operate them. The current cost to manufacture 10,320
remotes is as follows:
Direct materials
Direct labor
Variable overhead
Fixed overhead
Total
Cost
$ 67,080
$ 56,760
$ 30,960
$ 51,600
$ 206,400
Frannie is approached by Lincoln Company, which offers to make the remotes for $18 per unit.
Required:
1. Compute the difference in cost per unit between making and buying the remotes if none of the fixed costs can be avoided. What is
the change in net income, if Frannie Fans buys the remotes?
2. Compute the difference in cost per unit between making and buying the remotes if $20,640 of the fixed costs can be avoided. What
is the change in net income, if Frannie Fans buys the remotes?
3. What is the change in net income if fixed cost of $20,640 can be avoided and Frannie could rent out the factory space no longer in
use for $20,640?
Transcribed Image Text:Frannie Fans currently manufactures ceiling fans that include remotes to operate them. The current cost to manufacture 10,320 remotes is as follows: Direct materials Direct labor Variable overhead Fixed overhead Total Cost $ 67,080 $ 56,760 $ 30,960 $ 51,600 $ 206,400 Frannie is approached by Lincoln Company, which offers to make the remotes for $18 per unit. Required: 1. Compute the difference in cost per unit between making and buying the remotes if none of the fixed costs can be avoided. What is the change in net income, if Frannie Fans buys the remotes? 2. Compute the difference in cost per unit between making and buying the remotes if $20,640 of the fixed costs can be avoided. What is the change in net income, if Frannie Fans buys the remotes? 3. What is the change in net income if fixed cost of $20,640 can be avoided and Frannie could rent out the factory space no longer in use for $20,640?
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