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Given the information below, determine whether outsourcing of the particular manufacturing operation makes financial sense. The current variable cost... |

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answers: 1
71 cents

What you need to do here is to compare the total costs of these 10,000 widgets when made by your company to their cost when outsourced.

If you make them, you will incur fixed costs of $60,000 that are attributable to those widgets.  You will then be paying $10 per widget in variable costs.  Since you need 10,000 of them, your variable costs will be $100,000.  This means your total cost for the 10,000 widgets will be $160,000.  This, obviously, is $16 per widget.  Since that is more than $13 per widget, you will want to outsource this operation if there are no other considerations than those listed here.

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