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. Currently, the cost of producing circuit in-house includes variable cost of $26 per circuit and fixed cost of $5,000 perr month. Assume the fixed cost are unavoidable but thhat company could employ the vacated premises to earn rental income of $2,200 per month. If the companny outsources, monthly operating income will be ________________(Show work)

A) increase by $1,200

B) decrease by $14,000

C) decrease by $1,000

D) increase by $27,000

Explanation / Answer

correct option is "A" - increase by $1,200

Incremental savings     [500 *26] 13000 Rental income 2,200 Total income 15200 Less:Incremental cost   [500*28] - 14000 Incremental income 1200

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