Spikes Company manufactures 5,000 high-end racing bicycles each period. Spikes has been making all the components for the bikes, but a supplier has approached Spikes with an offer to sell her bicycle seats at a price of $40. The cost per unit of manufacturing one bicycle seat is computed as ollows: $10 $18 Direct Material Direct Labor Manufacturing overhead (100% fixed) $10 If the bicycle seats are purchased from the outside supplier, $1 per unit of the fixed manufacturing overhead costs can be avoided. If Spikes purchases the seats, the facility used to manufacture the seats would be rented for $20,000 per period. If Spikes chooses to purchase the bicycle seats, the the change in annual net operating income is an: A. $35,000 decrease. B. $35,000 increase. C. $5,000 decrease. D. $5,000 increase. E. $10,000 increase.

A

Explanation:

Option A Manufactures Bicycles

Costs

$10*5000=-$50000

$18*5000=-$90000

$10*5000=-$5000

total cost =$-190000

Purchase the bicycles seats

$40*5000=-$200000

$9*5000= -$45000

$20000 from rent facility

total costs =-225 000

Costs has increased meaning for same sales the profits will decrease by $35 000 .

$190000-$225000=$35000

A. $ 35,000 decrease

Explanation:

Computation of effect on net income

Cost of seat procured from outside $ 40 per seat

No of units manufactured                 5000 units

Total cost of purchase ( 5000 units * $ 40)                               $ 200,000

Savings in internal cost if procured from outside

Direct Materials $ 10 per seat * 5,000                    $ 50,000

Direct Labour  $ 18 per seat * 5,000                       $ 90,000

Differential in Fixed manufacturing overhead $ 1  $    5,000

Rental revenue from space                                     $ 20,000

Total impact on income from procurement                                $ 165,000

Incremental cost of procuring from  outside                             $  35,000

Since outside procurememt shall entail an additional cost of $ 35,000. the net income shall decrease by $ 35,000

being born in poverty would limit the people's chances, opportunities and benefits.

this happen because of several things, such as:

- poor people tend to gain less access to good education and nutrition. this mean that their chance to obtain high paying jobs would also be limited.

- poor people tend to socialize with other poor people while the rich tend to socialize with other rich people. this means that simply throguh their social circle, rich people would have more business opportunities compared to the poor people.

- rich people tend to have more capital in their disposal. this would benefit them in business since it is far easier for them to fund their business operation compared to poor people.

the answerr would be 1