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Ten Spot Company manufactures 40,000 components per year.  The manufacturing cost of the components was determined...

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Accounting

Ten Spot Company manufactures 40,000 components per year.  The manufacturing cost of the components was determined as follows:

Direct materials — $75,000
Direct labour — 120,000
Variable manufacturing overhead — 45,000
Fixed manufacturing overhead — 60,000
Total — $300,000

An outside supplier has offered to sell the component for $12. 75.

Refer to Ten Spot Company. What would be the effect on income if the company purchases the component from the outside supplier?


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