A company produces 500 microwave ovens per month, each of which includes one ele

Question

A company produces 500 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures the circuits in-house but is considering outsourcing the circuits at a contract cost of $28 each. month. Assume the fixed costs are unavoidable but that company could employ the vacated premises to earn rental income of $2,200 per month. If the company outsources, monthly operating income will Select one: O A. increase by $27,000 O B. increase by $1,200 O C. decrease by $1,000 Currently, the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per D. decrease by $14,000

Explanation / Answer

Make buy Difference Variable cost 13000 -13000 fixed cost 5000 5000 0 rent from vacated part -2,200 -2200 buying cost 14000 14000 total 18000 16800 -1200 so net income will increase by $1,200 option B is the correct answer

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