Question

An outside supplier has offered to sell the component for $17. If Damon purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $10,000. If Damon purchases the component from the supplier instead of manufacturing it, the effect on income would be:

Answer 1

C. a $10,000 decrease.

Step-by-step explanation:

Calculation for what the effect on income would be

First step is to calculate Make

Make=$100,000 + $160,000 + $60,000

Make = $320,000

Second step is to calculate Buy

Buy= $20,000 × $17 = $340,000 – $10,000

Buy = $330,000

Now let calculate the effect on income

Effect on income = $320,000 – $330,00

Effect on income = –$10,000 decrease

Therefore the effect on income would be –$10,000 decrease