Cotton Corp

Multiple Choice

Cotton Corp. currently makes 10,000 subcomponents a year in one of its factories. The unit costs to produce are: An outside supplier has offered to provide Cotton Corp with the 10,000 subcomponents at a $84.50 per unit price. Fixed overhead is not avoidable. If Cotton Corp accepts the outside offer, what will be the effect on short-term profits?

A) $260,000 increase
B) $195,000 decrease
C) no change
D) $65,000 increase