Canada Sailboats Company manufactures 10 luxury yachts per month
A compact media center is included in each yacht. Canada Sailboats manufactures the media center in-house but is considering the possibility of outsourcing this function. At present, the variable cost per unit is $270, and the fixed costs are $40,000 per month. Justin Blake, the CEO, wishes to increase operating income by $3,000. He has an offer from a foreign producer to provide the media centers at a contract cost of $325 per unit. The required saving in fixed cost in order to achieve his objective would be ________.
A) $3,000
B) $550
C) $3,550
D) $2,700
C .C)
Variable cost (10 x $270 ) $2,700
Purchase cost (10 x $325 ) 3,250
Loss on outsourcing $550
Add: Target increase in operating income 3,000
Required savings in fixed cost $3,550
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