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 $30 each.Currently,the cost of producing circuits in-house includes variable costs of $22 per circuit and fixed costs of $11,000 per month.Assume the company could cut fixed costs in half 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

By outsourcing, the company saves $5,500 in fixed costs but incurs an additional $8 per circuit for 500 circuits, totaling $4,000. The net effect is an increase in operating income by $1,500.

A Company Produces 500 Microwave Ovens Per Month,each of Which