Lightening Semiconductors Produces 400,000 Hi-Tech Computer Chips Per Month

question 49

Multiple Choice

Lightening Semiconductors produces 400,000 hi-tech computer chips per month. Each chip uses a component which Lightening makes in-house. The variable costs to make the component are $1.20 per unit, and the fixed costs run $1,200,000 per month. The company has been approached by a foreign producer who can supply the component, ready-made and with acceptable quality standards for $1.10 each. The fixed costs are unavoidable, and Lightening would have no other use for the facilities currently employed in making the component. What is the effect on operating income, if the company decides to outsource?

• A)There would be no effect on operating income.
• B)Lightening Semiconductors could save $1,200,000 per month in costs.
• C)Lightening Semiconductors could save $40,000 per month in costs.
• D)Lightening Semiconductor's costs would go up by $10,000 per month.

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Definitions:

Two-Factor Theory

A psychological theory that proposes motivation and job satisfaction are influenced by two factors: hygiene factors and motivators.

Working Conditions

The environment in which employees operate, which includes physical setup, hours, safety measures, and any other job-related conditions.

Job Dissatisfaction

A negative emotional state resulting from the appraisal of one’s job as frustrating, unsatisfying, or in some way not up to an individual's expectations.

Acquired Needs Theory

A motivational theory suggesting that people's needs are shaped over time by their life experiences, influencing their behavior and performance.