Tapeo Company Has Always Made Its Electronic Components That Go

question 92

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:

Minor Conflicts

Small disagreements or disputes that arise in personal or professional settings, typically easy to resolve.

Constructive Feedback

Critique that focuses on the process and outcomes of communication, not on the people involved.

Controllable Variables

Variables that can be manipulated or altered by the researcher in an experiment to observe their effects on the dependent variable.

Suggested Changes

Recommendations or proposals made to modify or improve a document, process, or system.