Value Electronics uses a standard part in the manufacture of different types of radios

The total cost of producing 25,000 parts is $95,000, which includes fixed costs of $40,000 and variable costs of $55,000. The company can buy this part from an external supplier for $3 per unit and avoid 20% of the fixed costs. If Value Electronics decides to outsource the production of the part, how will it impact its operating income?
A) Operating income increases by $12,000.
B) Operating income decreases by $12,000.
C) Operating income increases by $20,000.
D) Operating income decreases by $20,000.

B .B)
In-house Outsource

Variable cost $55,000 $75,000
Avoidable fixed cost 8,000
Total cost $55,000 $67,000

Reduction in operating income ($67,000 - $55,000 ) $12,000