The net income will increase by $8,000.
<u>Explanation:</u>
overhead should be considered. Irrelevant costs like distribution cost, fixed overhead should be ignored. They will occur in both the situation and hence will not affect the decision.
Here we will find financial advantage(disadvantage) of buying instead of making
Make Buy Increase
(decrease) in net income
Direct material ($180,000) 0 $180,000
Direct Labor ($90,000) 0 $90,000
factory overhead ($60,000) 0 $60,000
opportunity cost
of making
(Loss of rent income of made) ($18,000) 0 $18,000
cost of buying $0 ($340,000) ($340,000)
Total Net ($348,000) ($340,000) $8,000
The net income will increase by $8,000