Question

Fruit boat company manufacturers 10 fruit themed boats per month. A navigation system is included in each boat. Fruit Boat COmpany manufacturers the navigation system in-house but is considering the possiblity of outsourcing thsi function. At present, the variable cost per unit is $300, and the fixed costs are $39,000 per month. If it outsources the naviagation system, fxed costs could be reduced by half, and the vacant facilitiescould be rented out to earn 400 per month of rental income. What is the maximum contract cost that Fruit Boat Company should pay for outsourcing?

a. any cost lower than $3900 per unit
b. any cost lower than $2325 per unit
c. any cost lower than $2225 per unit
d. any cost lower than $275 per unit

Answer 1

the cost should be lower than $2,650 per unit

Step-by-step explanation:

The computation of the maximum contract cost should pay for outsourcing should be

Variable cost $300

Avoidable Fixed cost per unit (19,500÷ 10) 1,950

Opportunity cost (400 ÷ 10) 400

Total 2,650

Hence, the cost should be lower than $2,650 per unit

This is the answer but the same is not provided in the given options