Gecko Company Is Evaluating the Use of a Supplier Versus

question 42

Short Answer

Gecko Company is evaluating the use of a supplier versus making the wheels for its skateboards internally. The currently manufactured wheels have a variable unit cost of $2. Fixed costs are $16,000 per month, however, 25% can be eliminated if wheels are no longer produced. A supplier has offered to produce this part for $3 per wheel and can produce the 3,200 wheels for the 800 skateboards needed monthly. Should Gecko outsource wheels or make them internally? a. Outsource because the incremental cost savings is $12,800.
B) Make the product because the incremental cost savings is $3,200.
C) Outsource because the incremental cost savings is $800.
D) Outsource because the incremental cost savings is $8,800.

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Definitions:

Availability of Substitutes

The presence of alternative products or services that consumers can choose instead of the primary product, affecting the demand and price elasticity of goods.

Demand for Gasoline

The consumer's desire and willingness to pay for gasoline, influenced by its price, consumer income, and the prices of substitutes and complements.

Inelastic Demand

A market condition in which the demand for a product does not change significantly when its price increases or decreases.

Necessity

A requirement or an indispensable item essential for survival or the functioning of a system.