Answer:
net income will decrease by $60,000
Explanation:
current costs:
- direct materials = $20
- direct labor = $18
- variable manufacturing overhead = $10
- fixed manufacturing overhead = $8
- total cost per unit = $56
- total production costs = $56 x 50,000 = $2,800,000
relevant costs if product is purchased form external supplier:
- purchase price per unit = $52 x 50,000 = $2,600,000
- fixed manufacturing overhead = $8 x 3/4 x 50,000 = $300,000
- - lease of facilities = ($40,000)
- total relevant costs if product is purchased = $2,860,000
Since the relevant costs of purchasing the product are $60,000 higher, net income would decrease by that amount.
