1. Yankton Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows:

Direct materials	$140,000
Direct labor	230,000
Variable manufacturing overhead	80,000
Fixed manufacturing overhead	120,000
Total	$570,000

An outside supplier has offered to sell the component for $23.50.

What is the effect on income if Yankton Industries purchases the component from the outside supplier?

1. $20,000 increase
2. $20,000 decrease
3. $80,000 decrease
4. $80,000 increase