Mulcahey Automobiles Company Fabricates Automobiles An Indonesian Factory Has Offered to Supply Mulcahey with Ready-Made

Multiple Choice

Mulcahey Automobiles Company fabricates automobiles.Each vehicle includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows: $$\begin{array} { | l | r | l | } \hline \text { Volume } & 900 & \text { units per month } \\\hline \text { Variable cost per unit } & \$ 6 & \text { per unit } \\\hline \text { Fixed costs } & \$ 12,000 & \text { per month } \\\hline\end{array}$$ An Indonesian factory has offered to supply Mulcahey with ready-made units for a cost of $16 per wiring harness.Assume that Mulcahey's fixed costs could be reduced by $5,000 if it outsources and that Mulcahey will not be able to use the excess capacity in any profitable manner.If Mulcahey decides to outsource,monthly operating income will ________.

A) increase by $12,000
B) decrease by $12,000
C) increase by $5,400
D) decrease by $4,000