Question

Chapter 04, Problem 2
Gabriela Manufacturing must decide whether to insource or outsource a new toxic-free miracle carpet cleaner that works with its Miracle Carpet Cleaning Machine. If it decides to in source the product, the process would incur $300,000 of annual fixed costs and $1.50 per unit of variable costs. If it is outsourced, a supplier has offered to make it for an annual fixed cost of $200,000 and a variable cost of $1.80 per unit in variable costs. If the expected demand for the new miracle cleaner is 300,000 units, what would you recommend that Gabriela Manufacturing

Answer 1

For 300,000 units

Insource cost = $300,000 + $1.50(300,000)
= $300,000 + $450,000
= $750,000

Outsource cost = $200,000 + $1.80(300,000)
= $200,000 + $540,000
= $740,000

So it is better to outsource as total cost will be less.

Answer 2

Thank you

Answer 3

u r welcome...☺

Got a medal for me ??