Seven Seas Company Manufactures 100 Luxury Yachts Per Month

Seven Seas Company manufactures 100 luxury yachts per month. Included in each yacht is a compact media center. Seven Seas manufactures the media center in-house, but is considering the possibility of outsourcing that function. At present, the variable cost per unit is $275, and the fixed costs are $39,000 per month. The CEO wishes to boost operational income by $5,000. He has an offer from a foreign producer to provide the media centers at a contract rate of $300 per unit. In order to achieve his objective, how much fixed costs would he have to cut?

A) Cut $4,250 of fixed costs
B) Cut $2,000 of fixed costs
C) Cut $7,500 of fixed costs
D) Cut $19,500 of fixed costs