Carver Company Manufactures a Component Used in the Production of One

question 110

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.