Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: 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)$25,000 increase
B)$45,000 increase
C)$90,000 decrease
D)$90,000 increase

Question

Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows:  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)$25,000 increase 
B)$45,000 increase 
C)$90,000 decrease 
D)$90,000 increase

Quizplus · Accepted Answer

The Answer of Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows:  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)$25,000 increase 
B)$45,000 increase 
C)$90,000 decrease 
D)$90,000 increase

Foster Industries Manufactures 20,000 Components Per Year