Question 1
A company is considering buying a product at $15 per unit, the in-house manufacturing of the same product is $17. The fixed cost per unit is $3 is included in the $17 in-house product manufacturing cost. What should the company do in this scenario?
Question 2
The cost system of Charlton Frabricators indicates that a product cost $30 to make in house. Of that $30 cost, $7 consists of plant costs that have already been paid for. A supplier proposes to make the same product for $26 but Charlton's plant will have idle time and because of budgetary constraints, will not be retooled to take advantage of that idle time. Should the product be outsourced to the supplier?
◦ No because the relevant cost for making the product is only $23 .
◦ Yes because the Supplier can produce the product for $4.00 less per unit than Charlton can.
◦ Yes because the Supplier can produce the product for $11.00 less per unit than Charlton can.
◦ No because the plant can be utilized for other purposes and either save the company even more money or produce additional revenue.
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