Tosh Company fabricates automobiles
Each auto includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows:
Volume 900 units per month
Variable cost per unit $10 per unit
Fixed costs $13,000 per month
A factory in Indonesia has offered to supply Tosh with ready-made units for a cost of $10 each. Assume that Tosh's fixed costs are unavoidable, but the company could use the vacated production facilities to earn an additional $5,500 of profit per month. In order to maximize operating income, Tosh should outsource.
Indicate whether the statement is true or false
TRUE .In-house Outsource
Variable cost $9,000 $9,000
Less: Rent received 5,500
Total relevant cost $9,000 $3,500
As the relevant cost in outsourcing is less than in-house, the company should outsource to maximize operating income.
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