A company produces 100 microwave ovens per month,each of which includes one electrical circuit.The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract cost of $38 each.Currently,the cost of producing circuits in-house includes variable costs of $22 per circuit and fixed costs of $6000 per month.Assume the company could not reduce any fixed costs by outsourcing and that there is no alternative use for the facilities presently being used to make circuits.If the company outsources,operating income will ________.

Question

Quizplus · Accepted Answer

The cost of producing circuits in-house is $22 per circuit plus $6000 fixed costs. For 100 circuits, the total cost is $2200 (variable) + $6000 (fixed) = $8200. Outsourcing would cost $38 per circuit, totaling $3800. The difference is $3800 - $2200 = $1600, so operating income would decrease by $1600.

A Company Produces 100 Microwave Ovens Per Month,each of Which