Question

g A foreign factory has offered to supply with ready-made baskets for a price of $12 per basket. Assume that fixed costs are unavoidable, but that could use the vacated production facilities to earn an additional $8500 of profit per month. If Fruit Basket Company decides to outsource, monthly operating income will increase by ________.

Answer 1

The answer is "$5500".

Step-by-step explanation:

Analysis Differential:

Make Buy

Cost of variable
`800* 7 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ = 5600`

Fixed- cost
`16000\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 16000`

Purchasing cost
`800* 12\ = 9600`

Cost of opportunity
`\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 9500`

Total relevant cost
`31100 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 25600`

Increasing operating income
`= 31100-25600 = 5500`