Limited incurs the following annual costs in producing 30,000 CD drives for computers: Direct materials $ 60,000 Direct labor 100,000 Variable manufacturing overhead 80,000 Fixed manufacturing overhead 90,000 Total manufacturing costs $330,000 However, if BoPete purchases the drives from Windsor, Inc. for $10 each, what is the increase (decrease) in net income for BoPete

If the company buys the CdDdrivers, net income will decrease by $60,000

Explanation:

Giving the following information:

30,000 CD drives for computers:

Direct materials $ 60,000

Direct labor 100,000

Variable manufacturing overhead 80,000

Purchase price= $10

I will assume that none of the fixed manufacturing overhead costs are avoidable. We will not take them into account.

Total cost of production= 60,000 + 100,000 + 80,000

Total cost of production= $240,000

Unitary cost of production= 240,000/30,000= $8

Total cost of buying= 30,000*10= $300,000

If the company buys the CdDdrivers, net income will decrease by $60,000

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