Gladiator Company currently manufactures all component parts used in the manufacture of various products. A steel plate is used in several of the products Gladiator manufactures.

The current year budget for 20,000 steel plates has the following unit cost:

Direct material $0.60

Direct labor 0.40

Variable overhead 0.10

Fixed overhead 0.20

Total unit cost $1.30

Lion company has offered to supply 20,000 steel plates to Gladiator Company for $1.25 each. No fixed costs can be avoided if the steel plates are purchased from Lion.

If Gladiator opts to outsource the steel plates to Lion, its profits will:

Gladiator Company currently manufactures all component parts used in the manufacture of various products. A steel plate is used in several of the products Gladiator manufactures.

The current year budget for 20,000 steel plates has the following unit cost:

Direct material $0.60

Direct labor 0.40

Variable overhead 0.10

Fixed overhead 0.20

Total unit cost $1.30

Lion company has offered to supply 20,000 steel plates to Gladiator Company for $1.25 each. No fixed costs can be avoided if the steel plates are purchased from Lion.

If Gladiator opts to outsource the steel plates to Lion, its profits will:

A) Increase by $1,000

B) Increase by $3,000

C) Decrease by $3,000

D) Decrease by $1,000