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Galaxy Industries manufactures 15,000 components per year as one part of its production activities. The costs to manufacture the part are as follows: Direct materials

Galaxy Industries manufactures 15,000 components per year as one part of its production activities.

The costs to manufacture the part are as follows:

Direct materials $150,000
Direct labor $240,000
Variable manufacturing overhead $90,000
Fixed manufacturing overhead (allocated common costs) $120,000
Total $600,000

If the component is purchased, a part of the manufacturing facility can be rented to another business for $5,000.

An outside supplier has offered to sell the component to Galaxy for $34 each.

If Galaxy purchases the component instead of manufacturing it, the effect on Galaxys net income would be ...

A.

a $35,000 decrease

B.

a $95,000 decrease

C.

a $90,000 decrease

D.

a $30,000 decrease

E.

a $25,000 decrease

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