Question 16

AirWizz Products, a manufacturer of aircraft landing gear, makes 2,900 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 $61 and fixed costs of $65. The valves could be purchased from an outside supplier at $68 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 operating income to: Multiple Choice Decrease by $92,800. Increase by $55,100. Decrease by $55,100. Increase by $92,800