Hamilton Containers manufactures a variety of boxes used for packaging. Sales of its Model A20 box have increased significantly to a total of 400 comma 000 A20 boxes. Hamilton has enough existing production capacity to make all of the boxes it needs. The variable cost of making each A20 box is $ 0.85. By outsourcing the manufacture of these A20 boxes, Hamilton can reduce its current fixed costs by $ 84 comma 000. There is no alternative use for the factory space freed up through outsourcing, so it will just remain idle.

Question

Brennan Wood

Business

1 February, 12:17

Hamilton Containers manufactures a variety of boxes used for packaging. Sales of its Model A20 box have increased significantly to a total of 400 comma 000 A20 boxes. Hamilton has enough existing production capacity to make all of the boxes it needs. The variable cost of making each A20 box is $ 0.85. By outsourcing the manufacture of these A20 boxes, Hamilton can reduce its current fixed costs by $ 84 comma 000. There is no alternative use for the factory space freed up through outsourcing, so it will just remain idle.

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Answers (1)

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Bubbles · Answer 1

The answer is given below;

Explanation:

cost if produced internally $.85*400,000=$340,000+$84,000=$424,000

Per unit cost of making will be = $424,000/400,000=$1.06

The hamilton will be indifferent between outsourcing and making if the cost of outsourcing is $.85