Damon Industries manufactures 30,000 components per year. The manufacturing costs of the components was determined as follows:
Direct materials $ 150,000
Direct labor 170,000
Variable manufacturing overhead 70,000
Fixed manufacturing overhead 90,000
An outside supplier has offered to sell the component for $14. If Damon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $11,000. If Damon purchases the component from the supplier instead of manufacturing it, the effect on operating profits would be a:
a. $19,000 decrease
b. $41,000 increase
c. $49,000 decrease
d. $89,000 increase
Answers: 2
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Damon Industries manufactures 30,000 components per year. The manufacturing costs of the components...
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