A company makes a component that is part of several of its products. The managerial accountant reported monthly production costs to produce 1,000 units of the component included:
Direct materials $20,000
Direct labor 5,000
Variable overhead costs 10,000
Fixed overhead costs 11,000
The managerial accountant estimates that 10% of the fixed overhead costs allocated to the component will no longer be incurred if the company manager decides to stop making the component. If the manager stops making the component, what are the total monthly avoidable costs, or those costs that will no longer be incurred?
If the manager purchases the component from an outside supplier at $40 per unit, what is the change in monthly operating income? If the manager negotiates with the outside supplier, what is the maximum unit price the manager should pay to the outside supplier?
A. $46,000; $6,000 increase; $35.00
B. $35,000; $5,000 decrease; $35.00
C. $46,000; $6,000 increase; $46.00
D. $36,100; $3,900 decrease; $36.10
E. $36,100; $3,900 increase; $36.10