Please illustrate work:
Payne and McGough Corporation produces 5,000 units of part WOW internally for use in the assembly of its finished products. The unit cost of part WOW is based on a production level of 5,000 units per week as follows:
Variable Cost $20.00
Fixed Cost 10.00
Total Cost/unit $30.00
Part WOW also can be purchased from an outside supplier at $24 per unit. If part WOW is purchased from the supplier, 40% of the fixed costs can be eliminated. If the company purchases part WOW from the outside supplier, its operating income will:
1) increase by $30,000
2) remain the same
3) decrease by $30,000
4) increase by $20,000
5) none of the above.
Please provide the correct answer.