Aircraft Products, a manufacturer of aircraft landing gear, makes 1,800 units each year of a special valve used in assembling one of its products. The unit cost of producing this valve includes variable costs of $78 and fixed costs of $55. The valves could be purchased from an outside supplier at $85 each. If the valve were purchased from the outside supplier, 40% of the total fixed costs incurred in producing this valve could be eliminated. Buying the valves from the outside supplier instead of making them would cause the company's operating income to:

Multiple Choice

• Increase by $27,000.

• Decrease by $27,000.

• Increase by $46,800.

• Decrease by $46,800.