The following cost information is available: Direct materials $420 Direct labor (variable) 110 Variable manufacturing overhead...

The following cost information is available:

Direct materials $420
Direct labor (variable) 110
Variable manufacturing overhead 80
Fixed manufacturing overhead 30

A supplier has offered to sell the component to CM for $650 per unit. If 4-I buys the component from the supplier, the released facilities can be used to manufacture a product that would generate a contribution margin of $10,000 annually. Assuming that 4-I needs 4,000 components annually and that the fixed manufacturing overhead is unavoidable, what would be the impact on operating income if 4-I outsources?

Expert Solution

ekkarill92 answered 2 years ago

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