Question

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?

Answer 1

Answer:

Effect on income= 1,120,000 - 440,000= 680,000 increase

Explanation:

Giving the following information:

Sanchez Semiconductors produces 400,000 tech computer chips per month.

The variable costs to make the component are $ 1.30 per​ unit, and the fixed costs are $ 1,200,000 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%.

Make in house:

Variable cost= 400,000*1.3= 520,000

Unavoidable Fixed costs= 600,000

Total= 1,120,000

Buy= 1.1*400,000= 440,000