Question
D Incorporated is a producer of pet accessories, focusing on felines. Up until now they have produced one of their top sellers, a scratching post.
D Incorporated is a producer of pet accessories, focusing on felines. Up until now they have produced one of their top sellers, a scratching post. Normally they can produce 25,000 units in a period. To produce each unit they incur direct material costs of $25, direct labour of 2 hours at a rate of $15/hour, variable manufacturing overhead of $13, fixed manufacturing overhead of $40,000, and variable selling and administrative expense of $1.50.
Recently they were approached by a supplier of scratching posts that they could produce and sell scratching posts to D Inc. for $45/unit.
Ignoring qualitative issues, should D inc. continue producing in house or outsource production? What other quantitative factors should be considered in this incremental analysis.
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