A supplier has offered to sell the component to Carver for per unit. If Carver buys the component from the supplier, the releas
ed facilities can be used to manufacture a product that would generate a contribution margin of annually. Assuming that Carver needs components annually and that the fixed manufacturing overhead is unavoidable, what would be the impact on operating income if Carver outsources?
1 answer:
Answer:
A. Operating income would decrease by $100,000
Explanation:
The computation of the impact on operating income if Carver outsources is shown below:-
Particulars Per unit 3,000 units
Make Buy Make Buy
Direct material 410 1,230,000
Direct labor 110 330,000
Variable manufacturing
overhead 90 270,000
Opportunity cost 20,000
Purchase cost 650 1,950,000
Total cost 1,850,000 1,950,000
Operating income would decrease
= $1,950,000 - $1,850,000
= $10,000
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