Vest Industries Manufactures 40,000 Components Per Year An Outside Supplier Has Offered to Sell the Component for of the Components

Multiple Choice

Vest Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: $\begin{array}{lr}\text { Direct materials } & \$ 5,000 \\\text { Direct labor } & 120,000 \\\text { Variable overhead } & 45,000 \\\text { Fixed overhead } & 60,000 \\\text { Total } & \$ 300,000\end{array}$ An outside supplier has offered to sell the component for $12.75. Fixed cost will remain the same if the component is purchased from an outside supplier.
Vest Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Vest purchases the component from the outside supplier?

A) $225,000 decrease
B) $195,000 increase
C) $165,000 decrease
D) $135,000 increase