Question

g A foreign factory has offered to supply with ready-made baskets for a price of $12 per basket. Assume that fixed costs are unavoidable, but that could use the vacated production facilities to earn an additional $8500 of profit per month. If Fruit Basket Company decides to outsource, monthly operating income will increase by ________.

Answer 1

Answer:

The answer is "$5500".

Explanation:

Analysis Differential:  

                                             Make                            Buy

Cost of variable                        $800\times 7 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ = 5600$  

Fixed- cost                             $16000\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 16000$

Purchasing cost                                                    $800\times 12\ = 9600$

Cost of opportunity            $\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 9500$  

Total relevant cost                    $31100 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 25600$

Increasing operating income $= 31100-25600 = 5500$