Determine maximum outsourcing price (Learning Objective 6)
DefTone's sales have increased; as a result, the company needs 400,000 jewel-case liners rather than 250,000 . DefTone has enough existing capacity to make all of the liners it needs. In addition, due to volume discounts, its variable costs of making each liner will decline to \(\$ 0.28\) per liner. Assume that by outsourcing, DefTone can reduce its current fixed costs ( \(\$ 50,000\) ) by \(\$ 10,000\). There is no alternative use for the factory space freed through outsourcing, so it will just remain idle. What is the maximum Def Tone will pay to outsource production of its CD liners?