Chapter Homework B
Evaluating an Outsourcing Decision
Epson produces color cartridges for inkjet printers. Suppose cartridges are sold to mailorder distributors for $ each. Total fixed costs per year are $ Variable cost per unit are $ for direct materials, $ for direct labor, $ for factory overhead, and $ for distribution.
The variable distribution costs are for transportation to mailorder distributors. Also assume the current annual production and sales volume is and annual capacity is units.
REQUIRED
Determine the effect of the following situation on annual profits.
A Guatemalan manufacturer has offered a oneyear contract to supply ink for the cartridges including shipping costs at a cost of $ per unit. If Epson accepts the offer, it will be able to reduce variable manufacturing costs by and rent some of its factory space to another company for $ per month for months.
Note: enter all numbers as positive numbers, do NOT use a negative sign.
Profits would by $ X if Epson accepted Guatemalan manufacturing offer.
