Reference no: EM132572505

Question - Clinton's Engine Company manufactures part AT168 used in several of its engine models. Monthly unit production costs for 1,000 units are as follows:

Direct materials $40

Direct labor 10

Variable overhead costs 30

Fixed overhead costs 20

Total $100

It is estimated that 10% of the fixed overhead costs assigned to AT168 will no longer be incurred if the company purchases AT168 from the outside supplier. Clinton's Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.

If Clinton's Engine Company purchases 1,000 AT168 parts from the outside supplier per month, then calculate its monthly operating income will

a. decrease by $3,000

b. decrease by $85,000

c. increase by $80,000

d. increase by $2,000