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?
