Ortega Industries manufactures 15,000 components per year. The manufacturing cost of the components was determined to be as follows: Direct materials$150,000 Direct labor 240,000 Variable manufacturing overhead 90,000 Fixed manufacturing overhead 120,000 Total$600,000 Assume Ortega Industries could avoid $40,000 of fixed manufacturing overhead if it purchases the component from an outside supplier. An outside supplier has offered to sell the component for $34. If Ortega purchases the component from the supplier instead of manufacturing it, the effect on income would be a:
A. $100,000 decrease.
B. $10,000 increase.
C. $60,000 increase.
D. $140,000 increase.
Answer: B
Business
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