Question

Coronado Industries has the following costs when producing 100000 units: Variable costs $600000 Fixed costs 900000 An outside supplier has offered to make the item at $4.50 a unit. If the decision is made to purchase the item outside, current production facilities could be leased to another company for $178000. The net increase (decrease) in the net income of accepting the supplier’s offer is

Answer 1

Particulars Amount

Saving in variable costs $600,000

Add: Income from lease $178,000

Less: Purchase price (100000*$4.50) ($450,000)

Increase (Decrease) in net income $328,000

Thus, net income would increase by $628,000.