AlphaBrona Industries manufactures 50,000 components per year. The manufacturing cost of the components was determined as follows: ​ Direct materials      $ 80,000 Direct labor       100,000 Variable overhead         30,000 Fixed overhead         60,000 Total    $270,000 ​ An outside supplier has offered to sell the component to AlphaBrona for $10 per unit. Fixed costs will remain the same if the component is purchased from an outside supplier. What will be the effect on income if AlphaBrona Industries purchases the component from the outside supplier? a. $290,000 decrease b. $290,000 increase c. $45,000 decrease d. $45,000 increase

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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AlphaBrona Industries manufactures 50,000 components per year. The manufacturing cost of the components was determined as follows:

Direct materials

     $ 80,000

Direct labor

      100,000

Variable overhead

        30,000

Fixed overhead

        60,000

Total

   $270,000

An outside supplier has offered to sell the component to AlphaBrona for $10 per unit. Fixed costs will remain the same if the component is purchased from an outside supplier.

What will be the effect on income if AlphaBrona Industries purchases the component from the outside supplier?

a.
$290,000 decrease
b.
$290,000 increase
c.
$45,000 decrease
d.
$45,000 increase
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