Carver Company manufactures a component used in the production of one of its main products. The following cost information is available: Direct materials $420 Direct labor (variable) Variable manufacturing overhead Fixed manufacturing overhead 110 90 30 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 $20,000 annually. Assuming that Carver needs 3,000 components annually and that the fixed manufacturing overhead is unavoidable, what would be the impact on operating income if Carver outsources? O A. Operating income would decrease by $70,000. B. Operating income would increase by $20,000. C. Operating income would decrease by $20,000. D. Operating income would increase by $90,000.

Carver Company manufactures a component used in the production of one of its main products. The following cost information is available: Direct materials $420 Direct labor (variable) Variable manufacturing overhead Fixed manufacturing overhead 110 90 30 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 $20,000 annually. Assuming that Carver needs 3,000 components annually and that the fixed manufacturing overhead is unavoidable, what would be the impact on operating income if Carver outsources? O A. Operating income would decrease by $70,000. B. Operating income would increase by $20,000. C. Operating income would decrease by $20,000. D. Operating income would increase by $90,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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