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Foster Industries Manufactures 20,000 Components Per Year

Question 38

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Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows: Foster Industries manufactures 20,000 components per year.The manufacturing cost of the components was determined as follows:   If the component is not produced by Foster, inspection of products and provision of power costs will only be 10 percent of the production costs; moving materials costs and setting up equipment costs will only be 50 percent of the production costs; and supervision costs will amount to only 40 percent of the production amount.An outside supplier has offered to sell the component for $25.50. What is the effect on income if Foster Industries purchases the component from the outside supplier? A)  $25,000 increase B)  $45,000 increase C)  $90,000 decrease D)  $90,000 increase If the component is not produced by Foster, inspection of products and provision of power costs will only be 10 percent of the production costs; moving materials costs and setting up equipment costs will only be 50 percent of the production costs; and supervision costs will amount to only 40 percent of the production amount.An outside supplier has offered to sell the component for $25.50.
What is the effect on income if Foster Industries purchases the component from the outside supplier?


A) $25,000 increase
B) $45,000 increase
C) $90,000 decrease
D) $90,000 increase

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