Manor, Inc. currently manufactures 1,000 subcomponents per month in one of its factories. The unit costs to produce the subcomponents are: Manor is considering purchasing the subcomponents from an outside supplier, who normally charges $300 per unit. The supplier also has an "Exclusive Buyer's Club" which costs $30,000 per month to join, but whose members can purchase the subcomponents for $250 per unit. Fixed overhead is not avoidable. If Manor chose to purchase the subcomponents using the cheaper of the two buying options, what would be the effect on profit?
A) Decrease $25,000
B) Decrease $5,000
C) Increase $20,000
D) Increase $75,000

Question

Manor, Inc. currently manufactures 1,000 subcomponents per month in one of its factories. The unit costs to produce the subcomponents are:  Manor is considering purchasing the subcomponents from an outside supplier, who normally charges $300 per unit. The supplier also has an "Exclusive Buyer's Club" which costs $30,000 per month to join, but whose members can purchase the subcomponents for $250 per unit. Fixed overhead is not avoidable. If Manor chose to purchase the subcomponents using the cheaper of the two buying options, what would be the effect on profit?
A) Decrease $25,000 
B) Decrease $5,000 
C) Increase $20,000 
D) Increase $75,000

Quizplus · Accepted Answer

The Answer of Manor, Inc. currently manufactures 1,000 subcomponents per month in one of its factories. The unit costs to produce the subcomponents are:  Manor is considering purchasing the subcomponents from an outside supplier, who normally charges $300 per unit. The supplier also has an "Exclusive Buyer's Club" which costs $30,000 per month to join, but whose members can purchase the subcomponents for $250 per unit. Fixed overhead is not avoidable. If Manor chose to purchase the subcomponents using the cheaper of the two buying options, what would be the effect on profit?
A) Decrease $25,000 
B) Decrease $5,000 
C) Increase $20,000 
D) Increase $75,000