Miller Manufacturing builds and markets laptop computers forhome and small business use. During the...

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Miller Manufacturing builds and markets laptop computers forhome and small business use. During the past five years, sales havebeen as low as 10,000 units in a year and as high as 15,000 unitsin a year. The company has been approached by an outside supplieroffering to provide completed screens to the company for $65 each.The company’s marketing director negotiated the deal personally andis thrilled about how much cheaper it will be to purchase thescreens from outside. Producing the cost data outlined below, themanager proudly proclaims, “Look, a $25 per unit savings!”
Per [Based on 15,000 units year] Unit
Direct materials $40
Direct labor 10
Variable manufacturing overhead 3
Fixed manufacturing overhead,direct 10
Fixed manufacturing overhead, indirect 27
Total cost $90
Assume that Miller Manufacturing determines that sales in futureyears will be 12,000 units per year. IF thecompany decides to BUY the screens from the outside supplier,what will be the impact on annual company netincome?
Company net income will INCREASE by $300,000 if the companydecides to buy the screens from the outside supplier.
Company net income will DECREASE by $30,000 if the companydecides to buy the screens from the outside supplier.
Company net income will INCREASE by $30,000 if the companydecides to buy the screens from the outside supplier.
Company net income will DECREASE by $6,000 if the companydecides to buy the screens from the outside supplier.
Company net income will INCREASE by $6,000 if the companydecides to buy the screens from the outside supplier.
Company net income will DECREASE by $300,000 if the companydecides to buy the screens from the outside supplier.

Answer & Explanation Solved by verified expert

3.5 Ratings (502 Votes)

Avoidable Costs	Per unit
Direct material	$ 40
Direct labor	$ 10
Variable MOH	$ 3
	$ 53
Total Variable Cost for 12,000 units	$ 636,000
Fixed MOH, direct
$10*15,000	$ 150,000
Total Avoidable Cost	$ 786,000

Purchasing cost for 12,000 units = $ 65 x 12,000 = $ 780,000

Net increase in income on purchasing = 786,000 - $ 780,000 = $ 6,000

Hence option 5^th “Company net income will INCREASE by $ 6,000 if the company decides to buy the screens from the outside supplier.” is correct answer.

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Transcribed Image Text

In: AccountingMiller Manufacturing builds and markets laptop computers forhome and small business use. During the past...Miller Manufacturing builds and markets laptop computers forhome and small business use. During the past five years, sales havebeen as low as 10,000 units in a year and as high as 15,000 unitsin a year. The company has been approached by an outside supplieroffering to provide completed screens to the company for $65 each.The company’s marketing director negotiated the deal personally andis thrilled about how much cheaper it will be to purchase thescreens from outside. Producing the cost data outlined below, themanager proudly proclaims, “Look, a $25 per unit savings!”Per [Based on 15,000 units year] UnitDirect materials $40Direct labor 10Variable manufacturing overhead 3Fixed manufacturing overhead,direct 10Fixed manufacturing overhead, indirect 27Total cost $90Assume that Miller Manufacturing determines that sales in futureyears will be 12,000 units per year. IF thecompany decides to BUY the screens from the outside supplier,what will be the impact on annual company netincome?Company net income will INCREASE by $300,000 if the companydecides to buy the screens from the outside supplier.Company net income will DECREASE by $30,000 if the companydecides to buy the screens from the outside supplier.Company net income will INCREASE by $30,000 if the companydecides to buy the screens from the outside supplier.Company net income will DECREASE by $6,000 if the companydecides to buy the screens from the outside supplier.Company net income will INCREASE by $6,000 if the companydecides to buy the screens from the outside supplier.Company net income will DECREASE by $300,000 if the companydecides to buy the screens from the outside supplier.