Vaughn Manufacturing incurs the following costs to produce 10700 units of a subcomponent:

Direct materials	$8988
Direct labor	12091
Variable overhead	13482
Fixed overhead	16200

An outside supplier has offered to sell Vaughn the subcomponent for $2.85 a unit. If Vaughn accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3600. The increase (decrease) in net income from accepting the offer would be

$(3600).

$466.

$7666.

$(466).

3) Sheridan Company purchases sails and produces sailboats. It currently produces 1,270 sailboats per year, operating at normal capacity, which is about 80% of full capacity. Sheridan purchases sails at $268 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $98 for direct materials, $86 for direct labor, and $90 for overhead. The $90 overhead is based on $78,740 of annual fixed overhead that is allocated using normal capacity. The president of Sheridan has come to you for advice. It would cost me $274 to make the sails, she says, but only $268 to buy them. Should I continue buying them, or have I missed something?

If Sheridan suddenly finds an opportunity to rent out the unused capacity of its factory for $77,700 per year, would your answer to part (a) change?

Yes This is because the net income will Increase by $ _________________