Ultimate Travel Company fabricates automobiles.Each auto includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows:

A factory in India has offered to supply Ultimate Travel with ready-made units for a cost of $7 each.Assume that Ultimate Travel'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,Ultimate Travel should outsource.

Question

Ultimate Travel Company fabricates automobiles.Each auto includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows:
  
A factory in India has offered to supply Ultimate Travel with ready-made units for a cost of $7 each.Assume that Ultimate Travel'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,Ultimate Travel should outsource.

Quizplus · Accepted Answer

The cost of making the wiring harness in-house is not given, but it is mentioned that the factory in India is offering to supply it for $7 each. Therefore, it is safe to assume that outsourcing will save some costs for Ultimate Travel. Additionally, by outsourcing, Ultimate Travel can use the vacated production facilities to earn an additional $5,000 of profit per month. As a result, outsourcing will increase Ultimate Travel's operating income and should be the preferred option.

Ultimate Travel Company Fabricates Automobiles