Emery Products Is Deciding Whether to Outsource the Production of a Certain

question 130

Essay

Emery Products is deciding whether to outsource the production of a certain component that is included in all of its products.It currently costs Emery Products $1.20 to make each component in-house.If Emery 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:

Real GDP

A macroeconomic measure of the value of economic output adjusted for price changes (inflation or deflation), giving a more accurate depiction of an economy's size and growth rate.

Recessions

Periods of economic decline when real GDP falls for two consecutive quarters, indicating a significant reduction in economic activity across the economy.

Inflation Rate

A rate, described in percentages, indicating how prices for various goods and services are climbing, which in turn decreases the value of money.

GDP Deflator

A measure of the level of prices of all new, domestically produced, final goods and services in an economy, used to deflate or adjust the nominal GDP to real GDP.