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W.T. Ginsburg Engine Company manufactures part ACT31107 used in several of its engine models. ...

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W.T. Ginsburg Engine Company manufactures part ACT31107 used in several of its engine models. ...

W.T. Ginsburg Engine Company manufactures part ACT31107 used in several of its engine models. Monthly production costs for 1,000 units are as follows:

Direct materials$42,000
Direct labor10,500
Variable overhead costs32,500
Fixed overhead costs18,000
Total costs$103,000

It is estimated that 6% of the fixed overhead costs assigned to ACT31107 will no longer be incurred if the company purchases ACT31107 from the outside supplier. W.T. Ginsburg Engine Company has the option of purchasing the part from an outside supplier at $94.75 per unit.

If W.T. Ginsburg Engine Company purchases 1,000 ACT31107 parts from the outside supplier per month, then its monthly operating income will ________. (Round any intermediary calculations and your final answer to the nearest cent.)
A) increase by $8,670
B) increase by $21,330
C) decrease by $8,670
D) decrease by $21,330

Textbook

Cost Accounting: A Managerial Emphasis

Edition: 16^th

Authors: Horngren, Datar, Rajan

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