Question

Damon Industries manufactures 29,000 components per year. The manufacturing cost of the components was determined as follows:

Direct materials	$	145,000
Direct labor		169,000
Variable manufacturing overhead		69,000
Fixed manufacturing overhead		89,000

An outside supplier has offered to sell the component for $14. If Damon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $10,900. If Damon purchases the component from the supplier instead of manufacturing it, the effect on income would be:

a $81,100 increase.

a $55,100 decrease.

a $12,100 decrease.

a $33,900 increase.

Answer 1