Tosh Company fabricates automobiles
Each auto includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows:
Volume 900 units per month
Variable cost per unit $10 per unit
Fixed costs $13,000 per month
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.
Indicate whether the statement is true or false
TRUE .In-house Outsource
Variable cost $9,000 $9,000
Less: Rent received 5,500
Total relevant cost $9,000 $3,500
As the relevant cost in outsourcing is less than in-house, the company should outsource to maximize operating income.
You might also like to view...
The compa-ratio:
A. measures the degree to which actual pay is consistent with the pay policy. B. is defined as average pay for the grade divided by the minimum pay for the grade. C. can range from 0 to 100 percent. D. uses data from market-pay surveys. E. measures the degree to which new skills learnt are consistent with the increases in pay.
Which of the following is true of firms that compete in the global marketplace?
A. They must employ a domestic policy in order to have a competitive edge. B. They must employ a transnational policy in order to have a competitive edge. C. Because differentiation across countries can involve significant duplication and a lack of product standardization, it may reduce costs. D. Because differentiation across countries can involve significant duplication and a lack of product standardization, it may raise costs.