MC Qu. 12-05 A company produces a single component with..

A company produces a single component with variable and fixed production costs of $4 and $3. An external supplier has offered to sell the component to the company for $7 per unit. Assuming the company has no use for its idle capacity, what would be the effect of discontinuing production and sourcing the components from the supplier instead?

Multiple Choice

• The company will save $1 per unit.

• The company will save $2 per unit.

• The company will lose $3 per unit.

• The company will be indifferent.