Sanchez Semiconductors produces 400 comma 000 high minus tech computer chips per month. Each chip uses a component that Sanchez makes inminushouse. The variable costs to make the component are $ 1.30 per unit, and the fixed costs are $ 1 comma 200 comma 000 per month. The company has been approached by a foreign producer who can supply the component, within acceptable quality standards, for $ 1.10 each. If the company chooses to outsource, fixed costs can be reduced by 50 %. There are no other uses for the facilities currently employed in making the component. What would be the effect on operating income, if the company decides to outsource?
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