Doro Fill Company fabricates automobiles
Each auto includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows:
Volume 800 units per month
Variable cost per unit $6 per unit
Fixed costs $13,000 per month
A factory in Indonesia has offered to supply Doro Fill with ready-made units for a cost of $12 each. Assume that Doro Fill's fixed costs are unavoidable and that the company will not be able to use the excess capacity in any profitable manner. In order to maximize operating income, Doro Fill should not outsource.
Indicate whether the statement is true or false
TRUE .In-house Outsource
Variable Cost $4,800 $9,600
Fixed Cost 13,000 13,000
Total cost $17,800 $22,600
As the cost of production in-house is less than outsourcing, the company should produce in-house to maximize operating income.
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