Tosh Company fabricates automobiles.Each auto includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows:
$$\begin{array} { | l | r | l | }
\hline \text { Volume } & 900 & \text { units per month } \
\hline \text { Variable cost per unit } & \$ 10 & \text { per unit } \
\hline \text { Fixed costs } & \$ 13,000 & \text { per month } \
\hline
\end{array}$$ A factory in Indonesia has offered to supply Tosh with ready-made units for a cost of $10 each.Assume that Tosh's fixed costs are unavoidable,but the company could use the vacated production facilities to earn an additional $5,500 of profit per month.In order to maximize operating income,Tosh should outsource.

Question

Tosh Company fabricates automobiles.Each auto includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows:
 $$\begin{array} { | l | r | l | } 
\hline \text { Volume } & 900 & \text { units per month } \
\hline \text { Variable cost per unit } & \$ 10 & \text { per unit } \
\hline \text { Fixed costs } & \$ 13,000 & \text { per month } \
\hline
\end{array}$$ A factory in Indonesia has offered to supply Tosh with ready-made units for a cost of $10 each.Assume that Tosh's fixed costs are unavoidable,but the company could use the vacated production facilities to earn an additional $5,500 of profit per month.In order to maximize operating income,Tosh should outsource.

Quizplus · Accepted Answer

By outsourcing, Tosh can save on variable costs and earn additional profit from using the vacated facilities, which outweighs the fixed costs that are unavoidable.

Tosh Company Fabricates Automobiles A Factory in Indonesia Has Offered to Supply Tosh with Currently