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Ethridge Corporation is presently making part H25 that is used in one of its products. A total of 9,000 units of this part are produced
Ethridge Corporation is presently making part H25 that is used in one of its products. A total of 9,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per unit on Direct materials $7 Direct labor 8 Variable manufacturing overhead 3 supervisor's salary 2 depreciation of special equipment 3 allocated general overhead 6 An outside supplier has offered to make and sell the part to the company for $22 each. If this offer is accepted. only $8,000 of The allocated general overhead would be avoided if the part were purchased instead of produced internally. If management decides to buy part H25 from the outside supplier rather than to continue making the part what would be the annual impact on the company's overall net operating income? Select one: O a. Net operating income would decrease by $10000 per year O b. Net operating income would decrease by $8000 per year O c. Net operating income would increase by $20000 per year d. Net operating income would increase by $18000 per year
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