Pixis Cycle Company manufactures annually 20,000 units of SweetSeat, a bicycle seat used on many of the company's products, and also sold directly to retailers for $38 per unit. At the current level of production, the cost per unit to produce SweetSeat consists of:

Direct materials	$	9
Direct labor	$	7
Variable overhead	$	6
Fixed overhead	$	3

It has come to the attention of management that a seat of similar quality can be purchased from outside suppliers.

Assume that seats can be purchased from the outside supplier at $25 each, and that 60% of total fixed costs incurred in producing SweetSeat will be eliminated by this strategy. Buying the seats instead of manufacturing them would cause Pixi's operating income to:

Multiple Choice

• Decrease by $20,000.

• Increase by $16,000.

• Increase by $36,000.

• Decrease by $24,000.