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 that the fixed manufacturing overhead reflects the cost of Ortega's manufacturing facility. This facility cannot be used for any other purpose. An outside supplier has offered to sell the component to Ortega for $34. If Ortega Industries purchases the component from the outside supplier, the effect on operating profits would be a:
A. $30,000 increase.
B. $90,000 increase.
C. $30,000 decrease.
D. $90,000 decrease.
Answer: C
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