Walsh Automobile Company Fabricates Automobiles A Japanese Factory Has Offered to Supply Walsh with Ready-Made

question 116

Multiple Choice

Walsh Automobile Company fabricates automobiles.Each vehicle includes one airflow sensor,which is currently made in-house.Details of the airflow sensor fabrication are as follows: $$\begin{array} { | l | r | l | } \hline \text { Volume } & 900 & \text { units per month } \\\hline \text { Variable cost per unit } & \$ 8 & \text { per unit } \\\hline \text { Fixed costs } & \$ 14,000 & \text { per month } \\\hline\end{array}$$ A Japanese factory has offered to supply Walsh with ready-made units for a cost of $15 per sensor.Assume that Walsh's fixed costs could be reduced by $4000 if it outsources and that Walsh will not be able to use the excess capacity in any profitable manner.If Walsh decides to outsource,monthly operating income will ________.

• A)increase by $14,000
• B)decrease by $14,000
• C)increase by $7200
• D)decrease by $2300

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