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Thomas, Inc. estimates it will produce 1,200 homework machines during the next year with costs as follows:

Direct materials $200 per unit
Direct labor $160 per unit
Fixed overhead (40% avoidable) $300 per unit

An outside supplier has offered to produce the machines for Thomas for $700 a unit. What is the incremental effect on profit for this make or buy decision?

A. Increase in profit of $24,000.

B. Decrease in profit of $24,000.

C. Increase in profit of $240,000.

D. Decrease in profit of $120,000.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9413361

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