Blanrin Inc. currently produces all the components for the products it makes and sells. The total costs of producing a component,

Component Y, for one of its products are given below. The annual requirement of Component Y is 2,200 units.

Direct materials

$19,800

Direct labor

11,000

Variable manufacturing overhead

15,400

Fixed manufacturing overhead

13,200

An external supplier offers to sell the component to Blanrin Inc. for $23 per unit. After analysis, it is found that if the company buys the component instead of producing it, all of its variable costs and $8,200 of its fixed overhead costs will be eliminated. If Blanrin Inc. decides to buy the component instead of manufacturing it, how will the decision affect the company?

• Its net income will decrease by $3,800.
• Its net income will increase by $4,400.
• Its net income will increase by $8,200.
• Its net income will increase by $3,800.