B Inc. currently makes 1000 subcomponents a years in one of its factories. The production costs per unit are provided:

Per Unit

Direct Materials $25

Direct Labor $10

Variable Manu. Overhead $15

Fixed Manu. Overhead $20

Total Unit Cost $70

Fixed MO. would not be avoidable. An outside supplier has offered to provided B Inc. the 1,000 subcomponents for $65 per unit. Suppose B Inc. could use the space in its factory to produce another product that would add $50,000 in contribution margin. Which of the following would be true?

1. Purchasing from the outside supplier would increase income by 35,000
2. Purchasing from the outside supplier would decrease income by 35,000
3. B Inc. should keep making subcomponents
4. Purchasing the components from the supplier would cost the same as making them