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4 February, 10:22

A company produces 300 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract cost of $34 each. Currently, the cost of producing circuits in-house includes variable costs of $28 per circuit and fixed costs of $6,000 per month. The controller says that they should outsource production of the circuit, if it reduces fixed cost more than $1,800 per month. Is this statement true or false?

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Answers (2)
  1. 4 February, 11:14
    0
    True

    Explanation:

    There is 300 production per month

    Contract cost = 34

    Variable cost = 28

    Fixed cost per month per unit = 6000/300=$20

    total in house cost / unit 48

    =300 * (48-34) = $ 4200.

    Outsourcing of production by the of the circuit by the controller if it reduces fixed cost more than $1,800 per month is true
  2. 4 February, 13:37
    0
    True

    Explanation:

    Monthly production = 300

    Outsource rate = 34

    In house cost = 28

    Fixed cost / unit = 6000/300=20

    total in house cost / unit 48

    Saving on outsourcing = (48-34) * 300 = 4200.

    On outsourcing, fixed cost on the circuit is totally removed
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