A company produces 600 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 $30 each.Currently,the cost of producing circuits in-house includes variable costs of $24 per circuit and fixed costs of $7000 per month.Assume the fixed costs are unavoidable but that company could employ the vacated premises to earn rental income of $4300 per month.If the company outsources,monthly operating income will ________.

Question

Quizplus · Accepted Answer

The variable cost of producing the circuits in-house is $24 per circuit, and the company produces 600 circuits per month. So, the total variable cost of producing the circuits in-house is $24 * 600 = $14,400. The fixed cost of producing the circuits in-house is $7,000 per month. So, the total cost of producing the circuits in-house is $14,400 + $7,000 = $21,400. If the company outsources the circuits, it will incur a contract cost of $30 per circuit. So, the total cost of outsourcing the circuits will be $30 * 600 = $18,000. The company will also earn rental income of $4,300 per month if it outsources the circuits. So, the net monthly operating income if the company outsources the circuits will be $18,000 - $21,400 + $4,300 = $700. Therefore, the monthly operating income will increase by $700 if the company outsources the circuits.

A Company Produces 600 Microwave Ovens Per Month,each of Which