Lucas Inc. currently makes 20,000 subcomponents a year in one of its factories. The unit costs to

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Question:

Lucas Inc. currently makes 20,000 subcomponents a year in one of its factories. The unit costs to produce are:
Per unit
Direct materials $10
Direct labour 8
Variable manufacturing overhead 12
Fixed manufacturing overhead 8
Total unit cost $38

An outside supplier has offered to provide Lucas Inc. with the 20,000 subcomponents at a $35 per unit price. Fixed overhead is not avoidable. If Lucas Inc. rejects the outside offer, what will be the effect on short-term profits?
A. $60,000 increase
B. no change
C. $100,000 decrease
D. $60,000 decrease