Question: Sanchez Semiconductors produces 200,000 high-tech computer chips per month. Each chip uses a component that Sanchez makes in-house. The variable costs to make the component

Sanchez Semiconductors produces 200,000 high-tech computer chips per month. Each chip uses a component that Sanchez makes in-house. The variable costs to make the component are $1.20 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 $1.00 each. If the company chooses to outsource, fixed costs can be reduced by 30%. There are no other uses for the facilities currently employed in making the component. What would be the effect on operating income, if the company decides to outsource?

A> There would be no effect on operating income.

B> Operating income would increase by $400,000.

C> Operating income would increase by $200,000.

D> Operating income would decrease by $40,000.

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