W5 A3 11

11.

Sharp Company produces 8,000 parts each year, which are used in the production of one of its products. The unit product cost of a part is $36, computed as follows: Variable production costs $16

Fixed production cost 20 (+)

Unit product cost $36 (=) The parts can be purchased from an outside supplier for only $28 each. The space in which the parts are now produced would be idle and fixed production costs would be reduced by one-fourth. If the parts are purchased from the outside supplier, the annual impact on the company's operating income will be: A $24,000 increase B $24,000 decrease C $56,000 increase D $56,000 decrease