Question - Sal Manufacturing manufactures 200,000 components per year. The manufacturing cost of the components was determined as follows:
Direct materials $200,000
Direct labor 320,000
Variable manufacturing overhead 120,000
Fixed manufacturing overhead 160,000
An outside supplier has offered to sell the component for $3.40. If Sal purchases the component from the outside supplier, the manufacturing facilities would be unused and could be rented out for $20,000.
Questions: If Sal purchases the component from the supplier instead of manufacturing it, the effect on income would be
What is the maximum price Sal would be willing to pay the outside supplier?