Dong Fang Company fabricates inexpensive automobiles for sale to 3rd world countries. Each auto includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows:

A factory in Indonesia has offered to supply Dong Fang with ready-made units for a price of $14 each.

Assume that Dong Fang's fixed costs could be reduced by $5,000 if they outsource, and that Dong Fang will not be able to use the excess capacity in any profitable manner. What will be the impact on Dong Fang's monthly operating income, if Dong Fang decides to outsource?

A) It will go up by $2,600.

B) It will go down by $14,000.

C) It will go up by $8,600.

D) It will go down by $400.

Volume Variable cost per unit Fixed costs 900 $8 $14,000 units per month per unit per month