I think the question could be wrong. look at the AICPA released question that is nearly the same
31. CPA-08310 A company is considering outsourcing one of the component parts for its product. The company currently makes 10,000 parts per month. Current costs are as follows:
Per unit Total Direct materials $4 $40,000
Direct labor 3 30,000
Fixed plant facility cost 2 20,000
The company decides to purchase the part for $8 per unit from another supplier and rents its idle capacity for $5,000/month. How will the company's monthly costs change?
a. Decrease $15,000.
b. Decrease $10,000.
c. Increase $5,000.
d. Increase $10,000.
Solution: Choice “c” is correct. Monthly costs of the company would increase by $5,000 if the company elects to buy rather than make its component part. Change in cost is computed as follows: Cost of purchased component (10,000 parts x $8 per part) $80,000 Rental of idle capacity (5,000) Net cost $75,000
Avoidable costs
ā
direct materials ($40,000) Avoidable costs
ā
direct labor ( 30,000) Total costs avoided $(70,000) Cost increase $ 5,000 Choice “a” is incorrect. A decrease of $15,000 appears to include fixed plant facility costs as part of the incremental reduction in expenses.
Choice “b” is incorrect. A decrease of $10,000 appears to include fixed plant facility costs as part of the incremental reduction in expenses while ignoring the benefit of the rental of idle space.
Choice “d” is incorrect. An increase of $10,000 appears to ignore the benefit of the rental of idle space.