The Talbot Corporation makes wheels that it uses in the production of bicycles. Talbot's costs to produce 160,000 wheels annually are:

Direct materials	$32,000
Direct labor	$48,000
Variable manufacturing overhead	$24,000
Fixed manufacturing overhead	$64,000

An outside supplier has offered to sell Talbot similar wheels for $0.80 per wheel. If the wheels are purchased from the outside supplier, $19,000 of annual fixed overhead could be avoided and the facilities now being used could be rented to another company for $48,200 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 $43,200

increase by $32,000

decrease by $5,000

increase by $50,800