is Question: 3 pts 3 of 28 (1 complete) This Test: 100 pts poss Carver Company m

Question

is Question: 3 pts 3 of 28 (1 complete) This Test: 100 pts poss Carver Company manufactures a component used in the production of one of its main products. The following cost information is available Direct materials Direct labor (variable) Variable manufacturing overhead Fixed manufacturing overhead $410 110 80 35 A supplier has offered to sell the component to Carver for $650 per unit. If Carver buys the component from the supplier, the released facilities can be used to manufacture a product that would generate a contribution margin of $10,000 annually Assuming that Carver needs 4,000 components annualy and that the fixed manufacturing overhead is unavoidable, what would be the impact on operating income if Carver outsources? 0 A. Operating income would increase by $10,000 O B. Operating income would decrease by $10,000 O c. Operating income would decrease by $190,000 O D. Operating income would increase by $200,000

Explanation / Answer

Calculate relevant cost ;

If carver outsources then operating income would decrease by $190000

So answer is c) Operating income would decrease by $190000

Make Buy Direct material 1640000 Direct labour 440000 Variable overhead 320000 Purchase cost 2600000 Opportunity cost 10000 Total relevant cost 2410000 2600000

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