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# operating income

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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.

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#### Solution Preview

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

#### Solution Summary

Assess operating income.

\$2.49