Asked by sauli Lianga on Jun 20, 2024
Verified
Rowan Quinn Company manufactures kitchen appliances. Currently, it is manufacturing one of its components at a variable cost of $40 and fixed costs of $15 per unit. An outside provider of this component has offered to sell Rowan Quinn the component for $45. Determine the best plan and compute the savings assuming fixed costs are unaffected by the decision.
A) $5 savings per unit if manufactured
B) $5 savings per unit if purchased
C) $10 savings per unit if manufactured
D) $15 savings per unit if purchased
Variable Cost
Costs that vary directly with the level of production or sales, such as materials and labor.
- Determine the financial implications of manufacturing or outsourcing choices and evaluate their influence on earning potential.
Verified Answer
DM
Despina MarinaJun 24, 2024
Final Answer :
A
Explanation :
The total cost of manufacturing the component is $40 (variable) + $15 (fixed) = $55 per unit. Purchasing the component at $45 saves $10 per unit compared to manufacturing it in-house. However, since fixed costs are unaffected by the decision, the relevant comparison is between the variable cost of manufacturing ($40) and the purchase price ($45). Manufacturing saves $5 per unit compared to purchasing.
Learning Objectives
- Determine the financial implications of manufacturing or outsourcing choices and evaluate their influence on earning potential.