Tapeo Company Has Always Made Its Electronic Components That Go

question 78

Essay

Tapeo Company has always made its electronic components that go into their GPS systems in-house.Streeter Company has offered to supply these electronic components at a price of $38 each.Tapeo uses 18,000 units of these components each year.The cost per unit of this component is as follows:
Assume that 45% of Tapeo Company's fixed overhead would be eliminated if the electronic component was no longer produced in-house.
Required:
A.If Tapeo decided to purchase the electronic component from Streeter Company how much would its operating income increase or decrease?
B.Should Tapeo continue to make the electronic component or buy it from Streeter Company?

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Definitions:

State Unemployment Taxes

Taxes imposed by state governments on employers to fund unemployment insurance benefits for laid-off workers.

Hourly Wage Rate

The amount of money paid for each hour of work performed.

Federal Income Tax Withholding

Federal income tax withholding is the process by which an employer deducts a portion of an employee's income to pay directly to the federal government as a prepaid credit towards the employee’s annual tax liability.

Contingent Liabilities

Potential obligations that may arise from past events, depending on the outcome of future events.