Reference no: EM132720150

Sam's Manufacturing Company currently makes 100 units of a necessary component. Management is considering outsourcing this component for a cost of $1,700 per unit. Sam's incurs the following total production costs:

Direct Materials$80,000

Direct Labor23,000

Variable Overhead37,000

Fixed Overhead 24,000

Problem 1: If production is outsourced, none of the fixed overhead costs will be eliminated. How would profits be impacted if Sam's bought the component?

Option 1: Profits would go up by $67,000

Option 2: Profits would go down by $6,000

Option 3: Profits would go up by $6,000

Option 4: Profits would go down by $30,000