Answer:
A. $ 35,000 decrease
Explanation:
Computation of effect on net income
Cost of seat procured from outside $ 40 per seat
No of units manufactured 5000 units
Total cost of purchase ( 5000 units * $ 40) <u> $ 200,000</u>
Savings in internal cost if procured from outside
Direct Materials $ 10 per seat * 5,000 $ 50,000
Direct Labour $ 18 per seat * 5,000 $ 90,000
Differential in Fixed manufacturing overhead $ 1 $ 5,000
Rental revenue from space <u>$ 20,000</u>
Total impact on income from procurement <u>$ 165,000</u>
Incremental cost of procuring from outside <u> $ 35,000</u>
<u>Since outside procurememt shall entail an additional cost of $ 35,000. the net income shall decrease by $ 35,000</u>