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We make and sell inexpensive "lab-on-chip" laboratory kits for medical testing. We currently make the...

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Accounting

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We make and sell inexpensive "lab-on-chip" laboratory kits for medical testing. We currently make the microchips used in the laboratory kits. Our absorption unit cost for microchips is detailed below: Direct Materials (DM) $ 1.00 Direct Labor (DL) 10.00 Variable Manufacturing Overhead (VOH) 5.00 Fixed Manufacturing Overhead (FOH) 8.00 $24.00 Total An external supplier offers to sell us 10,000 of the microchips for $22.00 per chip. If we accept this proposal, $50,000 of our fixed overhead will be avoided. Which of the following statement is correct? OA. If we buy chips, we avoid the relevant costs of $220,000. B. The net effect of buying the chip will be a decrease in net income of $10,000. Oc. The net effect of buying the chip will be an increase in income of $10,000. D. None of the above

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