The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 230,000 wheels annually are:

Direct materials$46,000

Direct labor$69,000

Variable manufacturing overhead$34,500

Fixed manufacturing overhead$73,000

An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $28,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $70,900 per year. Direct labor is a variable cost.

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

Noreen 4e Recheck 2017-16-03

increase by $72,100

decrease by $6,500

increase by $46,000

increase by $64,400