Yankton Industries Manufactures 20,000 Components Per Year An Outside Supplier Has Offered to Sell the Component for of the Components

question 67

Multiple Choice

Yankton Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows: $\begin{array}{lr}\text { Direct materials } & \$ 140,000 \\\text { Direct labor } & 230,000 \\\text { Variable manufacturing overhead } & 80,000 \\\text { Fixed manufacturing overhead } & 120,000 \\\text { Total } & \$ 570,000\end{array}$ An outside supplier has offered to sell the component for $23.50.
Yankton Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Yankton purchases the component from the outside supplier?

• A)$25,000 increase
• B)$45,000 increase
• C)$75,000 decrease
• D)$105,000 increase

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