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Enterprises manufactures one of the components used to assemble its main company product. Specialty?Products, Inc., has offered to make the component at a cost of

$ 13.00$13.00

per unit.

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?Enterprises' current cost is

$ 16.75$16.75

per unit of the? component, based on the

120 comma 000120,000

components that

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Enterprises currently produces. Read the requirements

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.

This current cost per unit is based on the following? calculations:

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?(Click the icon to view the? information.)None of

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?Enterprises' fixed costs will be eliminated if the component is outsourced.? However, the freed capacity could be used to build a new product. This new product would be expected to generate

$ 28 comma 000$28,000

of contribution margin per year.Requirement 1. If

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Enterprises outsources the manufacturing of the? component, will operating income increase or? decrease? By how? much? ?(Enter a? "0" for any zero balances. Use a minus sign or parentheses in the Difference column when the cost to make exceeds the cost to? buy.)

Incremental Analysis	Make	Outsource
Outsourcing Decision	Component	Component	Difference
Variable costs	,
Plus: Fixed costs
Total cost of 120,000 components
Less: Profit from another product
Net cost

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Data Table

Direct material per unit	$5.50
Direct labor per unit	6.25
Variable manufacturing overhead per unit	1.50
Fixed manufacturing overhead per unit	3.50
Total manufacturing costs per unit	$16.75