Damon Industries manufactures 12,000 components per year. The manufacturing costs of the components was determined as follows:

Direct materials	$	114,000
Direct labor		17,500
Variable manufacturing overhead		57,000
Fixed manufacturing overhead		77,000

An outside supplier has offered to sell the component for $18. If Damon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $11,300. If Damon purchases the component from the supplier instead of manufacturing it, the effect on operating profits would be a:

Multiple Choice

a) $73,200 increase.

b) $38,200 decrease.

c) $16,200 decrease.

d) $38,800 increase.