Answered: Manor, Inc. currently manufactures…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter6: Activity-based, Variable, And Absorption Costing

Section: Chapter Questions

Problem 2PA: Five Card Draw manufactures and sells 24,000 units of Diamonds, which retails for $180, and 27,000...

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Manor, Inc. currently manufactures 1,000 subcomponents per month in one of its factories. The unit costs to produce the subcomponents are:

	Per unit
Direct materials		$	19
Direct labor			54
Variable manufacturing overhead			41
Fixed manufacturing overhead			48
Total unit cost		$	162

Manor is considering purchasing the subcomponents from an outside supplier, who normally charges $170 per unit. The supplier also has an "Exclusive Buyer's Club" which costs $17,000 per month to join, but whose members can purchase the subcomponents for $120 per unit. Fixed overhead is not avoidable. If Manor chose to purchase the subcomponents using the cheaper of the two buying options, what would be the effect on profit? (Do not round intermediate calculations.)

Multiple Choice

Increase $168,000
Increase $33,000
Decrease $23,000
Decrease $56,000

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