Sterling Products, a manufacturer of aircraft landing gear, makes 1,000 units ea

Question

Sterling 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 $70 and fixed costs of $60. The valves could be purchased from an outside supplier at $77 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:

Answer

A) Increase by $26,000. B) Increase by $17,000. C) Decrease by $9,000. D) Decrease by $29,000.

Explanation / Answer

B) Increase by $17,000. B) Increase by $17,000.

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