The fixed cost is 100,000 the price is $80. a pair the product is 10,000 paris
direct labor $35 a pair, direct material $30 a pair, total overhead $15 which adds up to $80.
I dont't know how to start with this, than its asking if outsoucing the price would be 10.50 a pair with 10% reduced for overhead, and 20% reduced for direct material. I have no i deal of how to set up the formular please help.
To determine whether outsourcing the production would be more cost-effective, we need to compare the cost of producing the pairs in-house with the cost of outsourcing.
Step 1: Calculate the in-house cost per pair:
- Direct labor cost per pair: $35
- Direct material cost per pair: $30
- Total overhead cost per pair: $15
- Adding up the direct labor, direct material, and total overhead costs, we get $35 + $30 + $15 = $80 per pair.
Step 2: Calculate the outsourcing cost per pair:
- Price per pair from the outsourcer: $10.50
- 10% reduction for overhead: $15 * 10% = $1.50 reduction
- 20% reduction for direct material: $30 * 20% = $6 reduction
- Subtract the reductions from the original price: $10.50 - $1.50 - $6 = $3 reduction
- Final price per pair with reductions: $10.50 - $3 = $7.50 per pair.
Step 3: Compare the in-house cost per pair with the outsourcing cost per pair:
- In-house cost per pair: $80
- Outsourcing cost per pair: $7.50
By comparing the in-house cost with the outsourcing cost, we can see that outsourcing is more cost-effective in this scenario.