River 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 $12.30 per unit. River Enterprises' current cost is $16.25 per unit of the component, based on the 125,000 components that River Enterprises currently produces. This current cost per unit is based on the following calculations: (Click the icon to view the information.) Read the requirements. None of River 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 $35,000 of contribution margin per year. Requirement 1. If River Enterprises outsources the manufacturing of the component, will operating income increase or decrease? By how much? (Enter a "O" for any zero balances. Use a minus sign or parentheses in the Difference column when the cost to make exceeds the cost to buy.) Make Data Table Outsource Incremental Analysis Outsourcing Decision Component Component Differenc Variable costs $ 4.50 Plus: Fixed costs Direct material per unit Direct labor per unit Variable manufacturing overhead per unit 6.75 i Requirements Total cost of 125,000 components Less: Profit from another product 1.50 Fixed manufacturing overhead per unit 3.50 16.25 Net cost $ Total manufacturing costs per unit 1. If River Enterprises outsources the manufacturing of the component, will operating income increase or decrease? By how much? 2. What is the maximum price per unit River Enterprises would be willing to pay if it outsources the component? Print Done Print Done