Answer:
The profit will increase by $3,000.
Step-by-step explanation:
This is a make or buy decision and the only relevant cost is the variable cost as the fixed is sunk cost. Therefore, we have:
Cost of buying from outside = Cost of buying from outside per unit * Number of units needed = $2 * 1,000 = $2,000
Cost making it internally = Variable cost per unit * Number of units needed = $5 * 1,000 = $5,000
Since Cost making it internally is greater, the amount by which profit increase can be calculated as follows:
Amount of increase in profit = Cost making it internally - Cost of buying from outside = $5,000 - $2,000 = $3,000
Therefore, the profit will increase by $3,000.