Alieia Boat Company manufactures 10 luxury yachts per month.A navigation system is included in each yacht.Alieia Boat manufactures the navigation system in-house but is considering the possibility of outsourcing this function.At present,the variable cost per unit is $300,and the fixed costs are $38,000 per month.If it outsources the security system,fixed costs could be reduced by half,and the vacant facilities could be rented out to earn $3000 per month of rental income.What is the maximum contract cost that Alieia should pay for outsourcing?

Question

Quizplus · Accepted Answer

The current total cost for manufacturing the navigation systems in-house is the sum of variable costs and fixed costs. The variable cost per unit is $300, and with 10 units produced per month, the total variable cost is $3000 ($300 * 10). The fixed costs are $38,000 per month. Therefore, the total current cost is $41,000 per month ($3000 + $38,000). If Alieia outsources, the fixed costs would be reduced by half to $19,000, and they could earn $3000 from renting out the vacant facilities, effectively reducing the monthly costs by $22,000 ($19,000 + $3000). Subtracting this from the current total cost of $41,000 gives $19,000, which, divided by the 10 units, results in a maximum contract cost of $1900 per unit to break even. However, since none of the provided options match this calculation, it appears there was a mistake in the calculation process. Re-evaluating: The correct approach is to consider the savings and additional income from outsourcing. The fixed costs would be halved to $19,000, and the rental income would be $3,000, making the effective fixed costs $16,000 ($19,000 - $3,000). The total cost savings and income from not producing the units in-house (ignoring the incorrect $1900 per unit calculation) should be compared to the potential outsourcing costs to determine the maximum contract cost per unit. Given the mistake in the initial calculation and explanation, let's correct the approach based on the options provided, assuming the initial calculation was intended to find the maximum outsourcing cost per unit that would keep the company's expenses the same as producing in-house.

Alieia Boat Company Manufactures 10 Luxury Yachts Per Month