How much will net income increase


Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent:

  • Direct materials $14,000
  • Direct labor 18,750
  • Variable overhead 21,000
  • Fixed overhead 27,000

An outside supplier has offered to sell Clemente the subcomponent for $4.75 a unit. If Clemente accepts the offer, by how much will net income increase (decrease)?

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Accounting Basics: How much will net income increase
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