Ortega Industries manufactures 21,300 components per year. The manufacturing cost of the components was determined to be as follows: Direct materials $ 186,000 Direct labor 420,000 Variable manufacturing overhead 108,000 Fixed manufacturing overhead 300,000 Total $ 1,014,000 Assume that the fixed manufacturing overhead reflects the cost of Ortega's manufacturing facility. This facility cannot be used for any other purpose. An outside supplier has offered to sell the component to Ortega for $34. If Ortega Industries purchases the component from the outside supplier, the effect on operating profits would be a:

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Ortega Industries manufactures 21,300 components per year. The manufacturing cost of the components was determined to be as follows:

Direct materials $ 186,000
Direct labor 420,000
Variable manufacturing overhead 108,000
Fixed manufacturing overhead 300,000
Total $ 1,014,000

Assume that the fixed manufacturing overhead reflects the cost of Ortega's manufacturing facility. This facility cannot be used for any other purpose. An outside supplier has offered to sell the component to Ortega for $34. If Ortega Industries purchases the component from the outside supplier, the effect on operating profits would be a:

 

 
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calculation of effect on  operating profit  if purchase the component out side are as follows

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