A company produces 100 microwave ovens permonth, each of which includes one electrical circuit. The company currently manufactures circuit in−house but is considering outsourcing the circuits at a contract price of$28 each.Currently, the cost of producing circuits in−house includes variable costs of$26 per circuit and fixed costs of$5,000 per month.
Assume the company could cut fixed costs in half by out sourcing, and that there is no alternative use for the facilities presently being used to make circuits. How will it affect monthly operating income, if the company out sources?
A. Operating income will go down by $200
B. Operating income will stay the same
C. Operating income will go down by $2,800
D. Operating income will go up by $2,300
saving in variable costs in the monthsaving in fixed cost in the month 26002500 Total saving in the month 5100 less: cost of outsourcing 2800 increase in income 2300