Dong Fang Company fabricates inexpensive automobiles for sale to

3rd

world countries. Each auto includes one wiring harness, which is currently made

inminushouse.

Details of the harness fabrication are as follows:

lume

900

Units per month

Variable cost per unit

$8.00

Per unit

Fixed costs

$14,000

Per month

A factory in Indonesia has offered to supply Dong Fang with

readyminusmade

units for a price of $14.00 each.

Assume that Dong Fang's fixed costs are unavoidable, and that Dong Fang will not be able to use the excess capacity in any profitable manner. If Dong Fang decides to outsource, what will be the impact on Dong Fang's monthly operational income?

A.It will go down by $14,000.

B.It will go up by $2,600.

C.It will go down by $5,400.

D.It will go up by $8,600.