ILF Makes 2,000 Waterproof Mattresses Annually to Be Used in One

question 57

Multiple Choice

ILF makes 2,000 waterproof mattresses annually to be used in one of its products. The unit cost of the mattresses includes variable costs of $45 and fixed costs of $30. If the mattresses were purchased from an outside supplier, 60% of the fixed costs could be eliminated. Buying mattresses from an outside supplier at a price of $50 each would cause ILF's operating income to:

• A) Increase by $26,000.
• B) Increase by $30,000.
• C) Increase by $6,000.
• D) Decrease by $10,000.

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Definitions:

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