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What operating income will if the company outsources

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Reference no: EM132500674

Question 1: 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 $30 each. Currently, the cost of producing circuits in-house includes variable costs of $22 per circuit and fixed costs of $11,000 per month. Assume the company could cut fixed costs in half 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 ________.

Option 1: increase by $1500

Option 2: decrease by $1500

Option 3: decrease by $4000

Option 4: stay the same

Reference no: EM132500674

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