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Yankton Industries manufactures 20,000 components per year. The manufacturing cost of the components
was determined as follows:

Direct materials $140,000
Direct labor 230,000
Inspecting products 60,000
Providing power 30,000
Providing supervision 40,000
Setting up equipment 60,000
Moving materials 20,000
Total $580,000

If the component is not produced by Yankton, inspection of products and provision of power costs will only be 10 percent of the production costs; moving materials costs and setting up equipment costs will only be 50 percent of the production costs; and supervision costs will amount to only 40 percent of the production amount. An outside supplier has offered to sell the component for $23.50.

What is the effect on income if Yankton Industries purchases the component from the outside supplier?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M946006

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