Andrews Industries Manufactures 10,000 Components Per Year A)a $31,000 Increase
B)a $31,000 Decrease
C)a $91,000 Increase
D)a

Andrews Industries manufactures 10,000 components per year.The manufacturing cost of the components was determined as follows: If the component is not produced by Andrews,inspection of products and provision of power costs will be only 10% of the production costs,moving materials costs and setting up equipment costs will be only 50% of the production costs,and supervision costs will amount to only 40% of the production amount.An outside supplier has offered to sell the component for $45.Suppose Andrews Industries purchases the component from the outside supplier.What will be the effect on Andrew's income?
$$\begin{array} { l r } \text { Direct materials } & \$ 140,000 \\\text { Direct labour } & 230,000 \\\text { Inspecting products } & 50,000 \\\text { Providing power } & 20,000 \\\text { Providing supervision } & 30,000 \\\text { Setting up equipment } & 50,000 \\\text { Moving materials } & 10,000 \\\text { Total } & \$ 530,000\end{array}$$

A) a $31,000 increase
B) a $31,000 decrease
C) a $91,000 increase
D) a $91,000 decrease

Correct Answer:

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