Question
As a result of increased sales, Tru Media needs 370,000 jewel-case liners rather than 220,000. Tru Media has enough existing capacity to make all of
As a result of increased sales, Tru Media needs 370,000 jewel-case liners rather than 220,000. Tru Media 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, Tru Media can reduce its current fixed costs ($44,000) by $11,500. There is no alternative use for the factory space freed through outsourcing, so it will just remain idle. What is the maximum Tru Media 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 Using the basic formula you determined above solve for the indifferent outsourcing cost per unit. (Round the per unit calculation to three decimal places.) The maximum Tru Media will pay to outsource production of its CD liners is $ per unit. (Enter amounts to three decimal places.) Tru Media would be indifferent between outsourcing and making the liners if the outsourcing price was $ per liner. Therefore, Tru Media will only be willing to outsource if the outsourcing price were per liner
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