Reference no: EM13556117

The Central Company manufactures thermostats. One of the key components of its thermostats is a heavy-duty switch. The company currently makes 10,000 of its own switches each year, at a cost of $18 per unit. The $18 unit cost consists of $8 in direct materials, $1 in direct labor, $6 in variable manufacturing overhead, and $3 in fixed manufacturing overhead. A new supplier has offered to provide 10,000 heavy-duty switches to Central Company at a cost of $16 per unit. What would the effect be on Central Company's total manufacturing costs if it chooses to accept the supplier's offer, rather than continue making the switches itself?

a. Manufacturing costs would increase by $20,000 for the year.

b. Manufacturing costs would increase by $10,000 for the year.

c. Manufacturing costs would decrease by $20,000 for the year.

d. Manufacturing costs would decrease by $10,000 for the year.

e. None of the above.