Galaxy Industries manufactures 15,000 components per year as one part of its production activities.

The costs to manufacture the part are as follows:

Direct materials	$150,000
Direct labor	$240,000
Variable manufacturing overhead	$90,000
Fixed manufacturing overhead (allocated common costs)	$120,000
Total	$600,000

If the component is purchased, a part of the manufacturing facility can be rented to another business for $5,000.

An outside supplier has offered to sell the component to Galaxy for $34 each.

If Galaxy purchases the component instead of manufacturing it, the effect on Galaxy’s net income would be ...

	A.	a $35,000 decrease
	B.	a $95,000 decrease
	C.	a $90,000 decrease
	D.	a $30,000 decrease
	E.	a $25,000 decrease

Answer rating: 100% (QA)

Relevant cost will be used in solving the question Make Bu... View the full answer