The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 260,000 wheels annually are:

Direct materials	$52,000
Direct labor	$78,000
Variable manufacturing overhead	$39,000
Fixed manufacturing overhead	$79,000

An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $34,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $93,400 per year. Direct labor is a variable cost.

If Talbot chooses to buy the wheel from an outside supplier, then the annual net operating income would:

Noreen 4e Recheck 2017-16-03

increase by $52,000

decrease by $5,000

increase by $88,400

increase by $70,600