Foster Industries Manufactures 20,000 Components Per Year

question 96

Multiple Choice

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $25.50.
Foster Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Foster purchases the component from the outside supplier?

• A) $45,000 increase
• B) $15,000 increase
• C) $75,000 decrease
• D) $105,000 increase

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