Question
Johnson Products, a manufacturer of aircraft landing gear, makes 1,000 units each year of a special valve used in assembling one of its products. The
Johnson Products, a manufacturer of aircraft landing gear, makes 1,000 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 $60 and fixed costs of $50. The valves could be purchased from an outside supplier at $66 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 net income to:
Select one:
a. Increase by $14,000
b. Decrease by $6,000
c. Increase by $20,000
d. Decrease by $26,000
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