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Chapter 1 6 , Homework B Evaluating an Outsourcing Decision Epson produces color cartridges for inkjet printers. Suppose cartridges are sold to mail

Chapter 16, Homework "B"
Evaluating an Outsourcing Decision
Epson produces color cartridges for inkjet printers. Suppose cartridges are sold to mail-order distributors for $5.20 each. Total fixed costs per year are $342,000. Variable cost per unit are $1.85 for direct materials, $0.10 for direct labor, $0.30 for factory overhead, and $0.05 for distribution.
The variable distribution costs are for transportation to mail-order distributors. Also assume the current annual production and sales volume is 180,000 and annual capacity is 220,000 units.
REQUIRED
Determine the effect of the following situation on annual profits.
A Guatemalan manufacturer has offered a one-year contract to supply ink for the cartridges (including shipping costs) at a cost of $1.25 per unit. If Epson accepts the offer, it will be able to reduce variable manufacturing costs by 50% and rent some of its factory space to another company for $1,100 per month for 12 months.
Note: enter all numbers as positive numbers, do NOT use a negative sign.
Profits would by $ X if Epson accepted Guatemalan manufacturing offer.
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