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Voyage Boat Company manufactures 100 luxury yachts per month. A compact media center is included in each yacht. Voyage Boat manufactures the media center in-house
Voyage Boat Company manufactures 100 luxury yachts per month. A compact media center is included in each yacht. Voyage Boat manufactures the media center in-house but is considering the possibility of outsourcing this function. At present, the manufacturing cost is as follow: the variable cost per unit is $280, and the fixed costs are $38,000 per month. Total Direct material Direct labor Variable overhead Fixed overhead total Per unit $130 $90 $60 $38,000 Aaron Dalton, the CEO, wishes to increase operating income by $2000. He has an offer from a foreign producer to provide the media centers at a contract cost of $340 per unit. If the company outsources the production of the part, all the direct material and direct labor and 90% of the variable overhead will be eliminated. In addition 20% of the fixed overhead (rental of an equipment) can be avoid. Instruction: If Voyage Boat Company decides to outsource the production of the part, will it comply with the CEO requirement? Prepare an incremental analysis to justify your
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