Question - Jackson Company manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows:
Direct materials $150,000
Direct labor $120,000
Variable overhead $80,000
Fixed overhead $100,000
An outside supplier has offered to sell Jackson the component for $19. If Jackson purchases the component from the outside supplier, fixed costs would be reduced by $10,000. The manufacturing facilities would be unused and could be rented out for $10,000. Should Jackson accept the offer?
Yes, because the differential costs decrease by $30,000.
No, because the differential costs increase by $30,000.
No, because the differential costs increase by $10,000.
Yes, because the differential costs decrease by $10,000.