Question
Lightning Semiconductors produces 400,000 hi?tech computer chips per month. Each chip uses a component that Lightning makes in?house. The variable costs to make the component
Lightning Semiconductors produces 400,000 hi?tech computer chips per month. Each chip uses a component that Lightning makes in?house. The variable costs to make the component are $1.30 per? unit, and the fixed costs are $1,200,000 per month. The company has been approached by a foreign producer who can supply the? component, within acceptable quality? standards, for $1.10 each. The fixed costs are? unavoidable, and Lightning would have no other use for the facilities currently employed in making the component. What would be the effect on operating income if the company decides to? outsource?
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