Carver Company Manufactures a Component Used in the Production of One

question 195

Multiple Choice

Carver Company manufactures a component used in the production of one of its main products.The following cost information is available: $$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 410 \\\hline \text { Direct labor (variable) } & 110 \\\hline \text { Variable manufacturing overhead } & 80 \\\hline \text { Fixed manufacturing overhead } & 35 \\\hline\end{array}$$ A supplier has offered to sell the component to Carver for $640 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 $20,000 annually.Assuming that Carver needs 3000 components annually and that the fixed manufacturing overhead is unavoidable,what would be the impact on operating income if Carver outsources?

• A) Operating income would decrease by $100,000.
• B) Operating income would increase by $20,000.
• C) Operating income would decrease by $20,000.
• D) Operating income would increase by $120,000.

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Definitions:

Health Care Cost

The expenses related to providing health care services, including prevention, diagnosis, treatment, and management of diseases and illnesses.

Per Person

A measurement or statistic that is applied to each individual within a specified group or population.

Biomedical Model

A framework focusing on the biological aspects of disease and illness for diagnosis and treatment, often overlooking psychological and environmental factors.

Microscopic Organisms

Tiny living things, such as bacteria, viruses, and fungi, that can only be seen with a microscope.