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Lightning semiconductors produces 300,000 hi-bech computer chips per month. Each chip uses a component which lightning makes in-house. The variable costs to make the component
Lightning semiconductors produces 300,000 hi-bech computer chips per month. Each chip uses a component which lightning makes in-house. The variable costs to make the component are $1.80 per unit, and the cost $543.000 per month. the company has been approached by a foreign producer who can supply the component, ready-made and with acceptable quality standards for $1.96 each. if lightning chooses to it could reduce fixed costs by 30 % Lightning does not have any other use for the facilities currently employed in making the component. What would be the effect on its operating income. if lightning decides to production of the component? there would be no effect on operating income threefold increase in operating income decrease operating income by $45,000 increase operating income by $207,000 none of the above
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