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Page 3 of 7 -2. Vest Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: Direct materials Direct labor Variable overhead Fixed overhead Total 75,000 120,000 45,000 -60.000 $300,000 An outside supplier has offered to sell the component for $12.75. Fixed costs will remain the same if the component is purchased from an outside supplier. What is the effect on income if Vest Industries purchases the component from the outside supplier!? A. $270,000 decrease B. $270,000 increase C. $30,000 decrease D. $30,000 increase 3. A company expects the following sales for the coming year: Units Average selling price 1st Quarter 40,000 $5 2nd Quarter 30,000 S5 3rd Quarter 60,000 $6 4th Quarter 80,000 $6 Budgeted sales revenue for the second quarter is: A. $150,000 B. $360,000 C. $200,000 D. $480,000 4. Pasha Company produced 50 defective units last month at a unit manufacturing cost of $30. The defective units were discovered before leaving the plant. Pasha can sell them "as is" for $20 or can rework them at a cost of $15 and sell them at the regular price of $50. Which of the following is not relevant to the sell-or-rework decision? A. $15 for rework B. $20 selling price of defective units C. $30 manufacturing cost D. $50 regular selling price E. All of these are relevant

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