A company produces

200

microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures the circuit

inhouse

but is considering outsourcing the circuits at a contract cost of

$28

each. Currently, the cost of producing circuits

inhouse

includes variable costs of

$26

per circuit and fixed costs of

$6,000

per month. Assume the company could not reduce any fixed costs by outsourcing and that there is no alternative use for the facilities presently being used to make circuits. If the company outsources, operating income will:

Question content area bottom

Part 1

A.

decrease by $400

B.

decrease by $5,200

C.

stay the same