Assume that if the component is purchased from the outside supplier,$35,100 of annual fixed manufacturing overhead would be avoided and the facilities now being used to make the component would be rented to another company for $64,800 per year.If Rogers chooses to buy the component from the outside supplier under these circumstances,then the impact on annual net operating income due to accepting the offer would be:
A) $18,900 decrease.
B) $18,900 increase.
C) $21,400 decrease.
D) $21,400 increase.

Question

Quizplus · Accepted Answer

The net operating income would increase by $18,900 because the savings from avoided fixed costs ($35,100) and rental income ($64,800) exceed the cost of purchasing the component.

Assume That If the Component Is Purchased from the Outside