Enthusiastic Products Is Deciding Whether to Outsource Production of a Certain

question 96

Essay

Enthusiastic Products is deciding whether to outsource production of a certain component that is included in all of its products. It currently costs Enthusiastic Products $1.20 to make each component in-house. If Enthusiastic Products outsources, it can buy the component ready-made for $0.90 each, and can shut down the production facilities it is currently using to manufacture the component, and save $20,000 a year in fixed costs. Annual requirement for the component is 12,000 units. What is the effect of outsourcing?

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Definitions:

Benefits-Received Principle

A theory of taxation wherein individuals pay taxes in proportion to the benefits they receive from government services.

Camping Fee

A charge for the privilege of accessing and using facilities or spaces designated for camping.

National Parks

Protected areas established by governments for the conservation of nature, preservation of wildlife, and recreation, accessible to the public.

Economic Income

The total value of all income received by individuals or corporations, including both realized and unrealized gains.