25. Konrade's Engine Company manufactures part TE456 used in several of its engine models. Annual...
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25. Konrade's Engine Company manufactures part TE456 used in several of its engine models. Annual financial accounting costs for 1,000 units are as follows: $ 40,000 1910,000 Direct materials Direct labor Variable manufacturing overhead costs Fixed manufacturing overhead costs 30,000 20.000 $100,000 Total costs It is estimated that (1) 10% of the fixed overhead costs assigned to TE456 will no longer be incurred if the company purchases TE456 from the outside supplier and (2) the factory, now idle, could be rented to another engine manufacturing company for $10,000 of rental revenue. Konrade's Engine Company has the option of purchasing the part from an outside supplier at $85 per unit. If Konrade's Engine Company purchases 1,000 TE456 parts from the outside supplier, then its operating income will a. increase by $7,000. b. increase by $80,000. c. decrease by $3,000. d. decrease by $85,000
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