Meacham Company Has Traditionally Made a Subcomponent of Its Major

Multiple Choice

Meacham Company has traditionally made a subcomponent of its major product. Annual production of 20,000 subcomponents results in the following costs: Meacham has received an offer from an outside supplier who is willing to provide 20,000 units of this subcomponent each year at a price of $28 per subcomponent. Meacham knows that the facilities now being used to make the subcomponent would be rented to another company for $75,000 per year if the subcomponent were purchased from the outside supplier. Otherwise, the fixed overhead would be unaffected.
-If Meacham decides to purchase the subcomponent from the outside supplier,how much higher or lower will net operating income be than if Meacham continued to make the subcomponent?

A) $45,000 higher
B) $70,000 higher
C) $30,000 lower
D) $70,000 lower