CM Company Manufactures a Component Used in the Production of One

question 16

Multiple Choice

CM Company manufactures a component used in the production of one of its main products.The following cost information is available:

A supplier has offered to sell the component to CM for $630 per unit.If CM 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 CM needs 4,000 components annually and that the fixed manufacturing overhead is unavoidable,what would be the impact on operating income if CM 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.

---

Definitions:

Acquisition

The process by which one company buys most or all of another company's shares to gain control of it.