X Co. annually produces 8,000 parts to be assembled into one product. The unit total cost is as follows:

Variable production cost: $16
Fixed Production cost: $20
Total Cost: $36

X Co. has the option of outsourcing production of parts to another company for $28 per part. If outsourced, Fixed production costs can be reduced by one fourth. If X Co. decided to outsourced production operating profit will:

A. Increase 24,000
B. Decrease 24,000
C. Increase 56,000
D. Decrease 56,000


This was on an exam that I took recently. I cannot understand the answer selections, as I would say that by outsourcing, the company's operating profit would Increase by 104,000 (64,000 saved in production costs + 40,000 saved in cut fixed costs).

Any thoughts?