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7 years ago
Cheong Automobiles Company fabricates automobiles. Each vehicle includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows:

Volume   1,300    units per month
Variable cost per unit   $12.50    per unit
Fixed costs   $15,000    per month

An Indonesian factory has offered to supply Cheong Company with ready-made units for a cost of $17 for each harness. Assume that Cheong's fixed costs are unavoidable and that Cheong will not be able to use the excess capacity in any profitable manner.  If Cheong decides to outsource, monthly operating income will ________.
A) decrease by $5,850
B) increase by $15,000
C) decrease by $15,000
D) increase by $5,850
Textbook 
Horngren's Financial & Managerial Accounting, The Financial Chapters

Horngren's Financial & Managerial Accounting, The Financial Chapters


Edition: 5th
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Deprecated Author
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#2
7 years ago
Makes perfect sense, thx
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