Vest Industries Manufactures 40,000 Components Per Year An Outside Supplier Has Offered to Sell the Component for of the Components

question 20

Multiple Choice

Vest Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: $\begin{array}{lr}\text { Direct materials } & \$ 5,000 \\\text { Direct labor } & 120,000 \\\text { Variable overhead } & 45,000 \\\text { Fixed overhead } & 60,000 \\\text { Total } & \$ 300,000\end{array}$ An outside supplier has offered to sell the component for $12.75. Fixed costs will remain the same if the component is purchased from an outside supplier.
What is the effect on income if Vest Industries purchases the component from the outside supplier?

• A) $270,000 decrease
• B) $270,000 increase
• C) $30,000 decrease
• D) $30,000 increase

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Definitions:

Deficiencies

The absence or lack of necessary qualities, skills, or resources.

Positive Consequence

A beneficial result or effect of an action or decision, often used to encourage desirable behaviors.

Promotion

The act of raising someone to a higher position or rank or the increasing of something's importance or value.

Transfer

The process of moving knowledge, skills, or behaviors from one context to another, enhancing learning or performance.