Explore BrainMass

operating income

Please show work:

Payne and McGough Corporation produces 5,000 units of part WOW internally for use in the assembly of its finished products. The unit cost of part WOW is based on a production level of 5,000 units per week as follows:
Variable Cost $20.00
Fixed Cost 10.00
Total Cost/unit $30.00

Part WOW also can be purchased from an outside supplier at $24 per unit. If part WOW is purchased from the supplier, 40% of the fixed costs can be eliminated. If the company purchases part WOW from the outside supplier, its operating income will:
a. increase by $30,000
b. remain the same
c. decrease by $30,000
d. increase by $20,000
e. none of the above. Please provide the correct answer.

Solution Preview

If part WOW is purchased from the supplier, the variable cost is 24, and ...

Solution Summary

Assess operating income.