Fact Pattern: Raymund, Inc., a bearings manufacturer, has the capacity to produce 7,000 bearings per month. Raymunds income statement for an average month is as follows:

Raymund has an effective income tax rate of 40%. The company is considering two mutually exclusive options, replacing a portion of its labor intensive production process with a highly automated process, or filling a one-time special order.

If Raymund retools its production process, the companys fixed manufacturing costs would be increased by $30,000 per month and its variable costs would be reduced by $5 per unit. If Raymund selects this option, the companys monthly operating income would be:

a. $5,000

b. $10,000

c. $30,000

d. $40,000