Damon Industries manufactures 26,000 components per year. The manufacturing cost of the components was determined...
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Accounting
Damon Industries manufactures 26,000 components per year. The manufacturing cost of the components was determined as follows:
| Direct materials | $ | 130,000 | |
| Direct labor | 166,000 | ||
| Variable manufacturing overhead | 66,000 | ||
| Fixed manufacturing overhead | 86,000 | ||
An outside supplier has offered to sell the component for $15. If Damon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $10,600. If Damon purchases the component from the supplier instead of manufacturing it, the effect on income would be:
a $83,400 increase.
a $47,400 decrease.
a $38,600 increase.
a $17,400 decrease.
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