Multiple Choice Question

Hickory Manufacturing has been staining and finishing its rocking chairs in house, based upon an estimated volume of 30,000 rocking chairs per month. The information related to the Finishing Department is as follows:

	Per Unit	Total
Direct materials	$5.00
Direct labor	$17.50
Variable manufacturing overhead	$6.00
Fixed manufacturing overhead	$2.00	$60,000

If Hickory outsources the finishing of the chairs, it can decrease fixed costs by $30,000 per month. Arrow Finishing has offered to do the finishing at a cost of $30 per chair. What will be the total effect on Hickory's profits if this offer is accepted?

Multiple choice question.

$15,000 decrease

$15,000 increase

$45,000 decrease

$45,000 increase