Question
Ryan is debating whether to make 2,000 units of product A which costs $16 a unit or buy it from outside for $15 a unit.
Ryan is debating whether to make 2,000 units of product A which costs $16 a unit or buy it from outside for $15 a unit. Further analysis shows that if product A is outsourced, fixed costs of $8,000 attributable to this product will be reduced by 25%. However, if outsourced, the space could be rented for $6,000. If the product is outsourced, Ryan will:
Answer is gain $2,000
I do not understand why. It seems like he would save $2,000 total variable costs, and $2,000 on the fixed expense reduction of 25%. Then, gain $6,000 for renting it out.
Seems the answer should be $10,000.
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