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Moon Technologies manufactures a part used in the manufacture of digital cameras. Currently, Moon manufactures 60,000 units of the part annually. The annual costs of
Moon Technologies manufactures a part used in the manufacture of digital cameras. Currently, Moon manufactures 60,000 units of the part annually. The annual costs of producing 60,000 parts include: Direct Materials $750,000 Direct Labor $600,000 Variable MOH $525,000 Fixed MOH $750,000 Management is considering whether to continue manufacturing the part, or to buy the part from an outside supplier at a cost of $24 per part. Purchasing the part from an outside source would enable the company to avoid 50% of fixed manufacturing overhead costs. The space freed up by purchasing the part from an outside supplier could be used to manufacture another product that would increase income by $70,000. What should Moon Technologies do and why? O A. Produce, because operating income will increase by $2,695,000 B. Produce, because operating income will increase by $880,000 C. Outsource, because operating income will increase by $880,000 D. Outsource, because operating income will increase by $1,815,000
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