Hoffman Containers manufactures a variety of boxes used for packaging. Sales of its Model A20 box have increased significantly to a total of 400,000 A20 boxes. Hoffman has enough existing production capacity to make all of the boxes it needs. The variable cost of making each A20 box is $0.75. By outsourcing the manufacture of these A20 boxes, Hoffman can reduce its current fixed costs by $100,000. There is no alternative use for the factory space freed up through outsourcing, so it will just remain idle. What is the maximum Hoffman will pay per Model A20 box to outsource production of this box? Begin by identifying the basic formula that is used to determine the indifferent outsourcing cost per unit. Cost if making A20 boxes Cost if outsourcing A20 boxes Using the basic formula you determined above solve for the indifferent outsourcing cost per unit. The maximum Hoffman will pay to outsource production of its A20 boxes is Hoffman would be indifferent between outsourcing and making the A20 boxes if the outsourcing price was per A20 box. Therefore, Hoffman will only be willing to pay per A20 box if outsourcing.

Hoffman Containers manufactures a variety of boxes used for packaging. Sales of its Model A20 box have increased significantly to a total of 400,000 A20 boxes. Hoffman has enough existing production capacity to make all of the boxes it needs. The variable cost of making each A20 box is $0.75. By outsourcing the manufacture of these A20 boxes, Hoffman can reduce its current fixed costs by $100,000. There is no alternative use for the factory space freed up through outsourcing, so it will just remain idle. What is the maximum Hoffman will pay per Model A20 box to outsource production of this box? Begin by identifying the basic formula that is used to determine the indifferent outsourcing cost per unit. Cost if making A20 boxes Cost if outsourcing A20 boxes Using the basic formula you determined above solve for the indifferent outsourcing cost per unit. The maximum Hoffman will pay to outsource production of its A20 boxes is Hoffman would be indifferent between outsourcing and making the A20 boxes if the outsourcing price was per A20 box. Therefore, Hoffman will only be willing to pay per A20 box if outsourcing.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 3CMA: Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each...

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