Valuable Electronics Uses a Standard Part in the Manufacture of Different

Multiple Choice

Valuable Electronics uses a standard part in the manufacture of different types of radios.The total cost of producing 29,000 parts is $105,000,which includes fixed costs of $50,000 and variable costs of $55,000.The company can buy the part from an outside supplier for $2 per unit and avoid 30% of the fixed costs.Assume that the company can use the freed manufacturing space to make another product that can earn a profit of $16,000.If Valuable outsources,what will be the effect on operating income?

A) increase of $28,000
B) decrease of $28,000
C) decrease of $15,000
D) increase of $16,000