Doro Fill Company fabricates inexpensive cars for sale to 3^rd world countries.Each car includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows:
$\begin{array} { | l | l | l | } \hline \text { Volume } & 300 & \text { units per month } \\\hline \text { Variable cost per unit } & \$ 7 & \text { per unit } \\\hline \text { Fixed costs } & \$ 14000 & \text { per month } \\\hline\end{array}$
A factory in Indonesia has offered to supply Dora Fill with ready-made units for a price of $11 each.Assume that Doro Fill's fixed costs are unavoidable and that the company will not be able to use the excess capacity in any profitable manner.In order to maximise operating profit,Doro Fill should not outsource.

Question

Doro Fill Company fabricates inexpensive cars for sale to 3^rd world countries.Each car includes one wiring harness,which is currently made in-house.Details of the harness fabrication are as follows:

\begin{array} { | l | l | l | } \hline \text { Volume } & 300 & \text { units per month } \\\hline \text { Variable cost per unit } & \$ 7 & \text { per unit } \\\hline \text { Fixed costs } & \$ 14000 & \text { per month } \\\hline\end{array}

A factory in Indonesia has offered to supply Dora Fill with ready-made units for a price of $11 each.Assume that Doro Fill's fixed costs are unavoidable and that the company will not be able to use the excess capacity in any profitable manner.In order to maximise operating profit,Doro Fill should not outsource.

Quizplus · Accepted Answer

Since the cost of outsourcing is lower than the cost of in-house production, outsourcing would reduce Doro Fill's variable costs and increase its operating profit. Therefore, Doro Fill should outsource to the Indonesian factory to maximise its profit.

Doro Fill Company Fabricates Inexpensive Cars for Sale to 3rd

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