Change direct speech into indirect speech

She said, "It is cold outside."
 

Direct speech is that speech that is used to repeat or quote the exact words spoken. Indirect speech is that speech that tells you what someone said but does not use the person's actual words. 
Option A is correct because, in direct speech, we find reporting verb is in the past tense, "said"; hence we will change the tense of the verb inside the quotation marks to the past tense. So, "is" becomes "was". Option B is wrong because the tense of the verb is not in the past tense.