A Company Produces 100 Microwave Ovens Per Month, Each of Which

question 37

Multiple Choice

A company produces 100 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract price of $28 each. Currently, the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 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, how will it affect monthly operating income?

• A) Operating income will go up by $2,300.
• B) Operating income will go down by $2,800.
• C) Operating income will go down by $200.
• D) Operating income will stay the same.

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Definitions:

Nonhydroxylic

Pertaining to a compound or substance that does not contain hydroxyl groups (-OH).

Isopropyl Tert-Butyl Ether

A chemical compound, an ether, formed from the reaction between isopropyl alcohol and tertiary butyl alcohol.

Alkoxymercuration

A chemical reaction that introduces an alkoxy group into an alkene to form an ether, typically involving mercury (II) acetate.

Demercuration

A chemical reaction process that removes mercury from an organomercury compound, often used in the context of reductive reactions and organic synthesis cleanup.