Answer:
Increase in income= $1,215,000
Explanation:
Giving the following information:
Billings Company has the following costs when producing 100,000 units: Variable costs $600,000 Fixed costs 900,000 An outside supplier has offered to make the item at $4.50 a unit. If the decision is made to purchase the item outside, current production facilities could be leased to another company for $165,000.
We don't know if all the fixed costs belong to the current production facilities. We will assume it does.
Current total cost= 600,000 + 900,000= $1,500,000
Buy= 4.5*100,000 - 165,000= 285,000
Increase in income= 1,500,000 - 285,000= $1,215,000
