Reference no: EM132664801

KI Corporation produces 10,000 units of K101 each week for use in the assembly of its finished products.  The unit cost of K101 is based on a production level of 10,000 units per week as follows:

Variable cost per unit: $105

Fixed cost per unit: $18

Problem 1: K101 also can be purchased from an outside supplier at $80 per unit. If K101 is purchased from the outside supplier, 30% of KI's fixed production costs can be eliminated. If KI purchases K101 from the outside supplier, then KI's operating income will:

a. increase by $126,000.

b. decrease by $126,000

c. decrease by $104,000

d . increase by $104,000