Carstairs Laboratories processes different types of Corona virus tests. Another laboratory offers to process all...
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Carstairs Laboratories processes different types of Corona virus tests. Another laboratory offers to process all of the Costello-type tests for Carstairs at a cost of $7.00 per test processed. Carstairs has the following costs per test, based on normal monthly processing of 300,000 Costello-type tests: Direct materials $4.00 Direct labor 0.50 Variable overhead 2.50 Fixed overhead 1.00 Total cost per unit $8 If Carstairs accepts the offer, they could eliminate some special purpose testing equipment only used for the Costello-type tests, saving them $80,000 of fixed overhead each month. Carstairs could also use the capacity which would become available to process more Pryor-type tests, which would generate $20,000 more contribution per month. By how much will Carstairs' income change if they accept the other laboratory's offer to process the 300,000 Costello-type tests each month for $7.00 per test? O A) Increase by $100,000 B) Increase by $400,000
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