Problem 1. Gears R Us produces high quality grandfather clocks. In the past, it has made all components of the product in house. The selling price of the most popular clock, Old Dependable, with unit sales of 30,000 per year, is $3,500. The unit cost for this clock follows (overhead is applied on the basis of machine hours).

DM $990

DL 440

VOH 60

FOH 200

Recently, a firm located in Vancouver has contacted the buyers of Gears R Us and offered to sell them gear mechanisms at $100 each. The supplier guarantees the quality of the product and offers to alter it in any way necessary so it fits seamlessly into the production process for Old Dependable. The current cost for the gear mechanism if produced in house is:

DM $57

DL 33

VOH 12

FOH 45

Compute the impact on NI if Gears R Us accepts the offer and buys the gear mechanisms instead of producing them in house.