Question
The following cost information is available: Direct materials $420 Direct labor (variable) 110 Variable manufacturing overhead 80 Fixed manufacturing overhead 30 A supplier has offered
The following cost information is available: Direct materials $420 Direct labor (variable) 110 Variable manufacturing overhead 80 Fixed manufacturing overhead 30 A supplier has offered to sell the component to CM for $650 per unit. If 4-I buys the component from the supplier, the released facilities can be used to manufacture a product that would generate a contribution margin of $10,000 annually. Assuming that 4-I needs 4,000 components annually and that the fixed manufacturing overhead is unavoidable, what would be the impact on operating income if 4-I outsources?
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