Chetek Industries manufactures 15,000 components per year.The manufacturing cost of the components was determined to be as follows: Assume that the fixed manufacturing overhead reflects the cost of Chetek's manufacturing facility.This facility cannot be used for any other purpose.An outside supplier has offered to sell the component to Chetek for $34.If Chetek Industries purchases the component from the outside supplier,the effect on income would be a
A)$30,000 decrease
B)$30,000 increase
C)$90,000 decrease
D)$90,000 increase

Question

Quizplus · Accepted Answer

If Chetek purchases the component from the outside supplier, they will save on variable costs but still incur fixed costs. The cost savings from not manufacturing the components internally would be less than the cost of purchasing them, leading to a $30,000 decrease in income.

Chetek Industries Manufactures 15,000 Components Per Year