Question
2 (2.5 Marks) Umair Company produces 4,500 children's bicycles each year. The company is considering the purchase of fidget spinners from an outside supplier. This
2 (2.5 Marks) Umair Company produces 4,500 children's bicycles each year. The company is considering the purchase of fidget spinners from an outside supplier. This outsourcing would enable the company to increase its production and sales (in units) by 15%. The company would pay the vendor Rs.6,000 for 2 fidget spinners, whereas it now costs Rs.5,200 to produce the 2 fidget spinners. Variable manufacturing costs (excluding the fidget spinners) are Rs.2,800 per bicycle when the company produces the fidget spinners in-house, but would decrease to Rs.2,600 per bicycle if the fidget spinners were outsourced. Other unit variable costs (administrative and selling) would remain at Rs.8,000. Fixed manufacturing costs are Rs.30m and fixed administrative costs are Rs.6m. The fixed costs would not change with outsourcing. The company sells all the bicycles for Rs.28,000 each. What would be the increase or decrease in net income if the fidget spinners are outsourced
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