CM Manufacturing has provided the following unit costs pertaining to a component they manufacture and use in the production of one of their main products:

Direct materials………………………..........$420

Direct labor (variable)………………........…110

Variable manufacturing overhead………90

Fixed manufacturing overhead………….35

A supplier has offered to provide the component to CM manufacturing for $630 per unit. If CM Manufacturing acquire the component from the supplier, they could use the released facilities to manufacture a product which would generate contribution margin of $20,000 annually. Assuming that CM Manufacturing needs 3,000 components annually and the fixed manufacturing overhead is unavoidable, what would be the impact on operating income if the company outsources?

A) Operating income would go down by $10,000.

B) Operating income would go up by $20,000.

C) Operating income would go down by $18,000.

D) Operating income would go up by $26,000.

Answer rating: 100% (QA)

A Operating income would go down by 10000 Explanation Direct material 4... View the full answer