Figure 12-1 Galaxy Industries manufactures 15,000 components per year. The manuf

Question

Figure 12-1 Galaxy Industries manufactures 15,000 components per year. The manufacturing cost of the components was determined to be as follows: Direct materials $150,000 240,000 90,000 Direct labor Variable manufacturing overhead Total Refer to Figure 12-1. Assume all costs are variable and will go away if the product is not made. An outside supplier has offered to sell the component to Galaxy for $34. If Galaxy Industries purchases the component from the outside supplier, the effect on income because of this change would be a a. $30,000 decrease b. $30,000 increase c. $90,000 decrease d. $90,000 increase 30.

Explanation / Answer

Purchase cost = 15000*34= $510000 Effect on income = 510000-480000 = $30000 decrease Option A is correct

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