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Foster Industries manufactures 2 0 , 0 0 0 components per year. The manufacturing cost of the components was determined as follows: Direct materials $

Foster Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows:
Direct materials $150,000
Direct labor 240,000
Inspecting products 60,000
Providing power 30,000
Providing supervision 40,000
Setting up equipment 60,000
Moving materials 20,000
Total $600,000
If the component is not produced by Foster, inspection of products and provision of power costs will only be 10% of the current production costs; moving materials costs and setting up equipment costs will only be 50% of the production costs; and supervision costs will amount to only 40% of the production amount. An outside supplier has offered to sell the component for $25.50.
What is the effect on income if Foster Industries purchases the component from the outside supplier?

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