Department A Department B Department C Total Sales $300,000 $280,000 $120,000 $700,000

Variable Expenses  160,000 175,000 105,000 440,000

Contribution Margin 140,000 105,000 15,000 260,000

Fixed Expenses  65,000 35,000 40,000 140,000
Net Income   $75,000 $70,000 $(25,000) $120,000

Ellen Electric has an offer from a potential supplier to provide 40,000 units at $65 each that Ellen Electric now manufactures at a total cost of $75 per unit. The manufacturing costs for 40,000 units are: direct materials $900,000; direct labor $450,000; variable overhead $900,000; and fixed overhead $750,000. All costs except $500,000 in fixed overhead will be avoided if the parts are purchased.

(B) Would your answer change if Ellen Electric could use the capacity that would become available to produce additional income of $125,000? Explain