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Question

Clinton's Engine Company manufactures part AT168 used in several of

its engine models. Monthly unit production costs for 1,000 units are as follows:
 
Direct materials
$ 40
Direct labor
10
Variable overhead costs
30
Fixed overhead costs
20 
         Total
$100
 
 
It is estimated that 10% of the fixed overhead costs assigned to AT168 will no longer be incurred if the company purchases AT168 from the outside supplier. Clinton's Engine Company has the option of purchasing the part from an outside supplier at $85 per unit.
 
If Clinton's Engine Company purchases 1,000 AT168 parts from the outside supplier per month, then its monthly operating income will
decrease by $3,000


decrease by $85,000


increase by $80,000


increase by $2,000

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Subject: Accounting, Business

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