Olive Corporation currently makes 12,900 subcomponents a year in one of its factories. The unit...
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Accounting
Olive Corporation currently makes 12,900 subcomponents a year in one of its factories. The unit costs to produce are:
| Cost per Unit | |
|---|---|
| Direct materials | $ 20 |
| Direct labor | 27 |
| Variable manufacturing overhead | 14 |
| Fixed manufacturing overhead | 11 |
| Total unit cost | $ 72 |
An outside supplier has offered to provide Olive with the 12,900 subcomponents at a $76 per-unit price. No portion of fixed overhead is avoidable. If Olive rejects the outside offer, what will be the effect on short-term profits?
Multiple Choice
$193,500 increase
no change
$141,900 decrease
$193,500 decrease
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