Western Industries Manufactures 40,000 Components Per Year A)a $135,000 Increase
B)a $165,000 Decrease
C)a $195,000 Increase
D)a

Multiple Choice

Western Industries manufactures 40,000 components per year.The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $12.75.Western 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 Western purchases the component from the outside supplier?
$$\begin{array} { l r } \text { Direct materials } & \$ 75,000 \\\text { Direct labour } & 120,000 \\\text { Variable manufacturing overhead } & 45,000 \\\text { Fixed manufacturing overhead } & 60,000 \\\text { Total } & \$ 300,000\end{array}$$

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