Cherry Company makes telephones. Currently, Cherry makes all the components of the telephones in-house. An outside company has offered to supply one component, part number X76, for $15 each. Cherry uses 15,000 of these components per year. Costs of X76 are as follows:

Direct materials

$2.00

Direct labor

$2.00

Variable overhead

$3.00

Fixed overhead

$6.00

Assume that all of the fixed overhead is allocated and cannot be avoided. Should Cherry purchase the part from the outside supplier?

a.Yes, income will increase by $278,500.

b.No, income will decrease by $145,500.

c.No, income will decrease by $120,000.

d.Yes, income will increase by $140,200.

e.Yes, income will increase by $200,500.