Wilson co. produces sports equipment and is currently producing 2,000 tennis rackets annually. a supplier has offered to produce the rackets for wilson co. for $370 per racket. wilson incurs unit-level costs of $360 per unit. wilson also spends $10,000 on product design each year and incurs $100,000 of facility-level costs. based on your quantitative analysis, should wilson co. outsource the rackets? what is the effect on profit?

Yes, Wilson Company shall outsource the rackets.

Effect on profit is that the profit will increase by the net cost avoided = $830,000 - $740,000 = $90,000

Explanation:

As for the information provided:

We will do a comparative analysis, of current situation and that of the offer given by supplier.

Total current cost in case of manufacturing:

Cost of production = $360 2,000 = $720,000

Cost of product design = $10,000

Facility level cost = $100,000

These all cost are avoidable in case of buying from supplier. Thus, total avoidable cost = $830,000

Total cost associated in case of buying the sports equipment from supplier shall be: $370 2,000 = $740,000

Since, the cost in case of buying is less, the tennis rackets shall be bought from supplier.

urban company reports the following information regarding its production cost: units produced 37,000 units direct labor $ 30 per unit direct materials $ 35 per unit variable overhead $ 237,000 in total fixed overhead $ 127,000 in total