Carver Company Manufactures a Component Used in the Production of One

question 66

Multiple Choice

Carver Company manufactures a component used in the production of one of its main products.The following cost information is available: $$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 420 \\\hline \text { Direct labor (variable) } & 100 \\\hline \text { Variable manufacturing overhead } & 90 \\\hline \text { Fixed manufacturing overhead } & 30 \\\hline\end{array}$$ 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 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 $110,000.
• B)Operating income would increase by $10,000.
• C)Operating income would decrease by $10,000.
• D)Operating income would increase by $120,000.

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Definitions:

Id

The id is part of Freud's psychoanalytic theory, representing the instinctual, unconscious part of the psyche driving basic impulses such as seeking pleasure.

Superego

In Freudian psychology, the part of the personality that represents internalized ideals, moral standards, and conscience, often in conflict with the id's desires.

Emphasized

Given special importance, value, or prominence to something.

Present

The period of time occurring now, or the current state or condition.