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: 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?

Question

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:  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?

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The Answer of 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:  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?

CM Manufacturing Has Provided the Following Unit Costs Pertaining to a Component