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:

Going Rate

Refers to the current average cost or pricing point for goods, services, or wages in a particular market or industry.

Oil Well

A drilled site where petroleum and natural gas are extracted from beneath the earth's surface.

Return

The profit or loss made on an investment over a certain period, often expressed as a percentage of the initial investment.

Payment

The act of giving money in exchange for goods, services, or to fulfill any obligations such as dividends to shareholders.