Ask Question
9 July, 20:50

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 circuits in-house includes variable costs of $26 per circuit and fixed costs of $7,000 per month. Assume the company could eliminate all 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

+1
Answers (1)
  1. 9 July, 21:19
    0
    company outsources, operating income will decrease by 1000

    Explanation:

    given data

    microwave ovens = 500 per month

    cost = $28 each

    variable costs = $26 per circuit

    fixed costs = $7,000 per month

    solution

    we know here Incremental savings is

    Incremental savings = microwave ovens * variable costs

    Incremental savings = 500 * 26 = 13000

    and

    Incremental cost is

    Incremental cost = microwave ovens * cost

    Incremental cost = 500 * 28 = 14000

    so

    company operation income = Incremental saving - Incremental cost

    company operation income = 13000 - 14000 = - 1000

    so company outsources, operating income will decrease by 1000
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “A company produces 500 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures the ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers