Ortega Industries manufactures 21,300 components per year. The manufacturing cost of the components was determined to be as follows: Direct materials $ 186,000 Direct labor 420,000 Variable manufacturing overhead 108,000 Fixed manufacturing overhead 300,000 Total $ 1,014,000 Assume Ortega Industries could avoid $130,000 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:
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Home » Business » Ortega Industries manufactures 21,300 components per year. The manufacturing cost of the components was determined to be as follows: Direct materials $ 186,000 Direct labor 420,000 Variable manufacturing overhead 108,000 Fixed manufacturing overhead