CM Manufacturing Has Provided the Following Unit Costs Pertaining to a Component

question 25

Multiple Choice

CM Manufacturing has provided the following unit costs pertaining to a component they manufacture and use in the production of one of their main products: A supplier has offered to provide the component to CM manufacturing for $630 per unit. If CM Manufacturing acquire the component from the supplier, they could use the released facilities to manufacture a product which would generate contribution margin of $20,000 annually. Assuming that CM Manufacturing needs 3,000 components annually and the fixed manufacturing overhead is unavoidable, what would be the impact on operating income if the company outsources?

• A)Operating income would go down by $10,000.
• B)Operating income would go up by $20,000.
• C)Operating income would go down by $18,000.
• D)Operating income would go up by $26,000.

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Definitions:

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Intelligence is the cognitive ability to learn, understand, and apply knowledge, solve problems, and adapt to new situations.

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The amount of water contained in a substance, which can affect the substance's properties, such as freshness in foods or hydration in the body.

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