4. CM Manufacturing has provided the following unit costs pertaining to a component they manufacture
and use in the production of one of their main products:
Direct materials (variable) $315
Direct labor (variable) 96
Variable manufacturing overhead 72
Fixed manufacturing overhead 29
A supplier has offered to provide the component to CM manufacturing for $500 per unit. CM
Manufacturing currently has no plans to use idle space that would be created if accepting offer from
supplier. Assuming that CM Manufacturing needs 2,000 components annually and the fixed
manufacturing overhead is unavoidable, what would be the impact on operating income if the company
outsources? **Show your work to support your answer.