Doro Fill Company fabricates inexpensive automobiles for sale to 3^rd world countries. Each auto includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows: A factory in Indonesia has offered to supply Dora Fill with ready-made units for a price of $10 each. Assume that Doro Fill's fixed costs are unavoidable, but the company could use the vacated production facilities to earn an additional $5,000 of profit per month. In order to maximize operating income, Doro Fill should outsource.

Question

Quizplus · Accepted Answer

Outsourcing the harnesses for $10 each would result in decreased variable costs for Doro Fill, increasing operating income. This would also free up production capacity to earn additional profit, further increasing operating income. Therefore, outsourcing would result in maximizing operating income.

Doro Fill Company Fabricates Inexpensive Automobiles for Sale to 3rd

Doro Fill Company Fabricates Inexpensive Automobiles for Sale to 3^rd