Jobs, Inc. produces the Ultimate computer chip:

Unit Cost

Direct materials $ 200

Direct labor 240

Variable overhead 160

Fixed overhead (40%

avoidable) 300

An outside supplier has offered to produce the chip for Jobs for $700.

If 10,000 units are needed each year, what will be the effect on net income if the computer chip is purchased from the outside supplier?

Multiple Choice

Decrease by $1,000,000

$600,000

Increase by $800,000

Increase by $200,000