Clifford, Inc

Multiple Choice

Clifford, Inc. currently manufactures 2,000 subcomponents in one of its factories. The current unit costs to produce the subcomponents are: Due to a labor strike, Clifford is considering purchasing the subcomponents from an outside supplier for $250 per unit rather than paying the 10% increase in direct labor costs demanded by the union. Fixed overhead is not avoidable. If Clifford purchases the subcomponent from the outside supplier, how much will profit differ from what it would be if it manufactured the subcomponents with the increase in direct labor cost?

A) $30,000 less
B) $20,000 less
C) $10,000 less
D) $20,000 more