Foster Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows:
Direct materials..........................................$150,000
Direct labor................................................240,000
Inspecting products........................................60,000
Providing power............................................30,000
Providing supervision......................................40,000
Setting up equipment......................................60,000
Moving materials..........................................20,000
Total......................................................$600,000
If the component is not produced by Foster, inspection of products and provision of power costs will only be 10% of the current production costs; moving materials costs and setting up equipment costs will only be 50% of the production costs; and supervision costs will amount to only 40% of the production amount. An outside supplier has offered to sell the component for $25.50.What is the effect on income if Foster Industries purchases the component from the outside supplier?
a. $45,000 increase
b. $90,000 decrease
c. $90,000 increase
d. $25,000 increase