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As a result of increased sales, Media Box needs 420,000 jewel-case liners rather than 270,000. Media Box has enough existing capacity to make all of
As a result of increased sales, Media Box needs 420,000 jewel-case liners rather than 270,000. Media Box 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 $0.26 per liner. Assume that by outsourcing, Media Box can reduce its current fixed costs ($48,600) by $9,500. There is no alternative use for the factory space freed through outsourcing, so it will just remain idle. What is the maximum Media Box will pay to outsource production of its CD liners? Begin by identifying the basic formula that is used to determine the indifferent outsourcing cost per unit. Cost if making liners Cost if outsourcing liners Direct materials + Direct labour Direct materials + Direct labour + Variable costs Sales revenue - Fixed costs Sales revenue - Total costs Sales revenue - Variable costs Variable costs + Fixed costs
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