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

question 64

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: $$\begin{array} { | l | r | l | } \hline \text { Volume } & 700 & \text { units per month } \\\hline \text { Variable cost per unit } & \$ 8 & \text { per unit } \\\hline \text { Fixed costs } & \$ 13,000 & \text { per month } \\\hline\end{array}$$ 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 $3000 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 $13,000
• B) decrease by $13,000
• C) increase by $5600
• D) decrease by $1900