Let's assume that Apple, the developer of iPods, is deciding whether to continue making the earbuds...

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Let's assume that Apple, the developer of iPods, is deciding whether to continue making the earbuds that are sold with the product or outsource production to Skullcandy, a company that specializes in earbuds. Let's assume Apple's cost to produce 2 million earbuds each period is as shown in Exhibit 8- 19. Further, Let's assume that Apple could save $500,000 of fixed costs each period by outsourcing. EXHIBIT 8-19 Production Costs and Volume 1 2 3 4 5 6 7 8 9 10 Comparison of Variable and Absorption Costs Direct materials Direct labor Variable MOH Total variable manufacturing cost Plus: Fixed MOH Total manufacturing cost Divide by: Number of units Cost per unit (absorption costing) Variable Cost per Unit $ L.$. Total Cost (2 million units) 4.00 S 0.50 1.50 6.00 $ $ $ 8,000,000 1,000,000 3,000,000 12,000,000 4,000,000 16,000,000 2,000,000 8.00 Let's further assume that Skullcandy is willing to provide earbuds to Apple for $7.00 each. Should Apple make the earbuds or buy them from Skullcandy? Let's assume that Apple, the developer of iPods, is deciding whether to continue making the earbuds that are sold with the product or outsource production to Skullcandy, a company that specializes in earbuds. Let's assume Apple's cost to produce 2 million earbuds each period is as shown in Exhibit 8- 19. Further, Let's assume that Apple could save $500,000 of fixed costs each period by outsourcing. EXHIBIT 8-19 Production Costs and Volume 1 2 3 4 5 6 7 8 9 10 Comparison of Variable and Absorption Costs Direct materials Direct labor Variable MOH Total variable manufacturing cost Plus: Fixed MOH Total manufacturing cost Divide by: Number of units Cost per unit (absorption costing) Variable Cost per Unit $ L.$. Total Cost (2 million units) 4.00 S 0.50 1.50 6.00 $ $ $ 8,000,000 1,000,000 3,000,000 12,000,000 4,000,000 16,000,000 2,000,000 8.00 Let's further assume that Skullcandy is willing to provide earbuds to Apple for $7.00 each. Should Apple make the earbuds or buy them from Skullcandy?

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Inhouse Production Costs per 2 million units Direct Materials Variable cost per unit 4 Total cost 4 ... View the full answer