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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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