Question #3

Sitro, LTD had been making a component for one of its products, but is now considering outsourcing the component to a Chinese company, which has offered to sell an unlimited quantity of components for $6 per unit. If Sitro outsources, it could shut down a whole department and rent the building for $2,000 per month. The cost of making the component is $5 per unit, which includes $1.50 of fixed costs, of which only $1.00 per unit can be avoided if the department is shut down. Sitro currently produces about 1,000 units per month. Whoa We cost advantage or disadvantage of per unit of outsourcing the component? a. $1.00 disadvantage b. $1.50 disadvantage c. $1.00 advantage d. $0.50 advantage Sitro, LTD had been making a component for one of its products, but is now considering outsourcing the component to a Chinese company, which has offered to sell an unlimited quantity of components for $6 per unit. If Sitro outsources, it could shut down a whole department and rent the building for $2,000 per month. The cost of making the component is $5 per unit, which includes $1.50 of fixed costs, of which only $1.00 per unit can be avoided if the department is shut down. Sitro currently produces about 1,000 units per month. Whoa We cost advantage or disadvantage of per unit of outsourcing the component? a. $1.00 disadvantage b. $1.50 disadvantage c. $1.00 advantage d. $0.50 advantage