Xon Company needs 1,000 components for one of its products. It can subcontract production of the components to the Eon Company for $40 each. The business can produce the components internally for a total variable cost of $30 per component. Xon Company has spare capacity. What will be the impact on Xon's profit if Eon's offer is accepted?

Question

Quizplus · Accepted Answer

By subcontracting to Eon at $40 each instead of producing internally at $30 each for 1,000 components, Xon would incur an additional cost of $10 per component, leading to a $10,000 decrease in profit.

Xon Company Needs 1,000 Components for One of Its Products