Tapeo Company has always made its electronic components that go into their GPS systems in-house. Streeter Company has offered to supply these electronic components at a price of $38 each. Tapeo uses 18,000 units of these components each year. The cost per unit of this component is as follows:
Assume that 45% of Tapeo Company's fixed overhead would be eliminated if the electronic component was no longer produced in-house.
Required:
A. If Tapeo decided to purchase the electronic component from Streeter Company how much would its operating income increase or decrease?
B. Should Tapeo continue to make the electronic component or buy it from Streeter Company?

Question

Tapeo Company has always made its electronic components that go into their GPS systems in-house. Streeter Company has offered to supply these electronic components at a price of $38 each. Tapeo uses 18,000 units of these components each year. The cost per unit of this component is as follows:
  Assume that 45% of Tapeo Company's fixed overhead would be eliminated if the electronic component was no longer produced in-house.
Required:
A. If Tapeo decided to purchase the electronic component from Streeter Company how much would its operating income increase or decrease?
B. Should Tapeo continue to make the electronic component or buy it from Streeter Company?

Quizplus · Accepted Answer

The Answer of Tapeo Company has always made its electronic components that go into their GPS systems in-house. Streeter Company has offered to supply these electronic components at a price of $38 each. Tapeo uses 18,000 units of these components each year. The cost per unit of this component is as follows:
  Assume that 45% of Tapeo Company's fixed overhead would be eliminated if the electronic component was no longer produced in-house.
Required:
A. If Tapeo decided to purchase the electronic component from Streeter Company how much would its operating income increase or decrease?
B. Should Tapeo continue to make the electronic component or buy it from Streeter Company?

Tapeo Company Has Always Made Its Electronic Components That Go