Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate to the production of Part P40:

Number of parts produced annually		24,000
Fixed costs	$ 42,000
Variable costs	$ 69,000
Total cost to produce	$ 111,000

Jackson Corporation can purchase the part from an outside supplier for $4.73per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. If Jackson Corporation makes the part, how much will its operating income be?

A.

$ 21,000 greater than if the company bought the part

B.

$ 65,520 greater than if the company bought the part

C.

$ 134,520 greater than if the company bought the part

D.

$ 23,520 greater than if the company bought the part

Part P40 is a part used in the production of air conditioners at Jackson Corporation. The following costs and data relate to the production of Part P40:

Number of parts produced annually		24,000
Fixed costs	$ 44,000
Variable costs	$ 69,000
Total cost to produce	$ 113,000

Jackson Corporation can purchase the part from an outside supplier for $ 4.37 per unit. If they purchase from the outside supplier, 50% of the fixed costs would be avoided. Assume that factory space freed up by purchasing the part from an outside source can be used to manufacture another product that can be sold for

$ 2,400 profit. If Jackson Corporation makes the part, what will its operating income be?

A.

$ 11,480 less than if the company bought the part

B.

$ 11,480 greater than if the company bought the part

C.

$ 16,280 greater than if the company bought the part

D.

$ 124,480 greater than if the company bought the part