Two thirds of fixed manufacturing costs can be eliminated

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Reference no: EM131266457

The MSU produces 1,000 parts per year, which are used in the assembly of one of its products. The unit product cost of these parts is:

Variable manufacturing cost....$12

Fixed manufacturing cost......... 9

Unit Product Cost....................$ 21

The part can be purchased from an outside supplier at $20 per unit. If the part is purchased from the outside supplier, two thirds of the fixed manufacturing costs can be eliminated. The annual impact on the company's net operating income as a result of buying the part from the outside supplier would be:

a. $1,000 increase.

b. $1,000 decrease.

c. $5,000 increase.

d. $2,000 decrease.

Reference no: EM131266457

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