Cotton Corp. currently makes 10,000 subcomponents a year in one of its factories. The unit costs to produce are: Per unit Direct materials $ 28.50 Direct labor 9.00 Variable manufacturing overhead 15.50 Fixed manufacturing overhead 22.00 Total unit cost $ 75.00 An outside supplier has offered to provide Cotton Corp. with the 10,000 subcomponents at an $80.50 per unit price. Fixed overhead is not avoidable. If Cotton Corp. rejects the outside offer, what will be the effect on short-term profits?

Multiple Choice

• $275,000 decrease

• $220,000 increase

• no change

• $55,000 increase