1. Economics
2. Microeconomics
3. Output & Costs
4. 18879

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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.