Cost of making the component for ABC Company (per unit):

Direct materials $15

Direct labor (all variable) 20

Variable manufacturing overhead 10

Fixed manufacturing overhead 25

The ABC Company uses this component to make its products, and it makes 10,000 units of this component per year. The XYZ Company has offered to sell to ABC the exact same component for $60 per unit. If ABC stops making the component, there is no alternative use for the area of the factory where the component is made. How much would ABCs operating income increase or decrease if it buys the component from XYZ, assuming that $13 of the fixed manufacturing overhead cost will not be avoided if ABC buys the component? Should ABC make the component or buy it from XYZ?

The ABC Company uses this component to make its products, and it makes 10,000 units of this component per year. The XYZ Company has offered to sell to ABC the exact same component for $60 per unit. If ABC stops making the component, it can lease the area of the factory where the component is made and receive $40,000 per year. How much would ABCs operating income increase or decrease if it buys the component from XYZ, assuming that $13 of the fixed manufacturing overhead cost will not be avoided if ABC buys the component? Should ABC make the component or buy it from XYZ?