Taser industries must decide whether to make or buy some of its components. the costs of producing 175,000 battery packs for its product are as follows: direct materials $15,000 direct labor $5,000 variable overhead $6,000 fixed overhead $9,000 the company has an opportunity to purchase the battery packs for $0.18 per unit, which would eliminate all variable costs, and $2,000 of fixed costs. based on your analysis, what is the net income increase or decrease if the company purchases the battery packs

It is cheaper to produce in-house. Cost savings= $3500

Explanation:

We need to find whether it is better to produce in-house or to purchase to a supplier.

Q= 175000

Produce in house:

Direct Materials $15,000

Direct Labor $5,000

Variable overhead $6,000

Fixed overhead $9,000

Total cost= $35000

Outsource:

Purchase Cost= 175000q*$0.18= $31500

Fixed Cost= (9000-2000)= $7000

Total cost=$38500

It is cheaper to produce in-house. Cost savings= $3500

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