ABC Company is planning to launch a new product and is considering two options: option A involves producing the product in-house, while option B involves outsourcing the production to a third-party vendor. The company wants to make the most cost-effective decision. The following information is available for each option:

Option A:

• Fixed costs: $100,000 per year
• Variable costs: $10 per unit
• Selling price: $30 per unit
• Expected sales volume: 10,000 units

Option B:

• Fixed costs: $20,000 per year
• Variable costs: $12 per unit
• Selling price: $30 per unit
• Expected sales volume: 10,000 units

Required:

1. Calculate the contribution margin for each option.
2. Based on the contribution margin, which option would you recommend, and why?

Answer rating: 100% (QA)

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