Asked by
Faith Myers
on Oct 14, 2024
Verified
Gordon Corporation produced 10,000 digital watches in the current year.Variable costs are $8 per watch.Overhead assigned is $2.25 per watch.A supplier offers the watches for $9.50 each.Gordon's production manager reports the incremental overhead is $1.25 per watch.Gordon should:
A) Continue making the watches as an additional $1.50 per watch would be incurred if bought from the supplier.
B) Continue making the watches as an additional $0.25 per watch would be incurred if bought from the supplier.
C) Buy the watches as they would save $0.75 per watch.
D) Buy the watches as they would save $1.50 per watch.
E) Buy the watches as they would save $1.75 per watch.
Incremental Overhead
Additional overhead costs that arise from new activities or an increase in production beyond normal operations.
Variable Costs
Costs that vary directly with the level of production or the volume of services provided.
- Become proficient in the concepts of incremental cost and revenue, and how they apply to decisions made by managers.
- Ascertain and differentiate the characteristics of fixed versus variable costs.
Verified Answer
SS
Learning Objectives
- Become proficient in the concepts of incremental cost and revenue, and how they apply to decisions made by managers.
- Ascertain and differentiate the characteristics of fixed versus variable costs.