Answer the Following Questions Using the Information Below:
Genent's Engine

question 128

Multiple Choice

Answer the following questions using the information below:
Genent's Engine Company manufactures part TE456 used in several of its engine models. Monthly production costs for 1,000 units are as follows:
$\begin{array}{lr}\text { Direct materials } & \$ 46,000 \\\text { Direct labor } & 11,500 \\\text { Variable overhead costs } & 34,500 \\\text { Fixed overhead costs } & 23,000 \\\quad \text { Total costs } & \$ 115,000\end{array}$ It is estimated that 8% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier. Genent's Engine Company has the option of purchasing the part from an outside supplier at $97.75 per unit.
-If Genent's Engine Company purchases 1,000 TE456 parts from the outside supplier per month,then its monthly operating income will ________.

• A) increase by $3,910
• B) increase by $19,090
• C) decrease by $3,910
• D) decrease by $19,090

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Definitions:

Rigidly Defined

Described or specified with strictness and inflexibility.

Flexible

Capable of bending easily without breaking; adaptable to change or capable of being modified to suit different conditions or uses.

Natural Selection

A fundamental mechanism of evolution where organisms better adapted to their environment tend to survive and produce more offspring.

Highly Flexible

Capable of being easily modified to adapt to new conditions or to bend or move without breaking.