The Coldplay Company is evaluating an option to outsource production of its only product, while it will continue to perform all sales, marketing and administration duties in-house. Coldplay incurs direct materials, direct labor and variable overhead costs of $20 for each unit of product it manufactures. In addition, Coldplay incurs fixed manufacturing overhead costs annually of $1,000,000 and has annual production of 100,000 units. Coldplay has determined that it could avoid all fixed manufacturing costs if it outsources production. Based on a quantitative analysis only of this information, is the following statement true or false? Coldplay should make the decision to outsource production of its only product if a third-party supplier offers to manufacture and sell to Coldplay the product for less than $30 per unit. True or False?
The Coldplay Company is evaluating an option to outsource production of its only product, while it will continue to perform all sales, marketing and administration duties in-house. Coldplay incurs direct materials, direct labor and variable
Based on a quantitative analysis only of this information, is the following statement true or false?
Coldplay should make the decision to outsource production of its only product if a third-party supplier offers to manufacture and sell to Coldplay the product for less than $30 per unit.
True or False?
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