CAF-5 · Chapter 15 · Question 8 of 10
Component Z can be manufactured in-house with a variable cost of Rs. 45 per unit. An external supplier has offered to provide Component Z for Rs. 50 per unit. If the company completely outsources the component, it can avoid Rs. 30,000 in specific fixed overheads. What is the net financial impact of outsourcing 5,000 units of Component Z?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Net savings of Rs. 5,000
Explanation
Cost to Make internally = Variable costs (5,000 units × Rs. 45) + Specific Fixed Costs (Rs. 30,000) = Rs. 255,000. Cost to Buy externally = 5,000 units × Rs. 50 = Rs. 250,000. Since buying costs Rs. 250,000 and making costs Rs. 255,000, outsourcing results in a net savings of Rs. 5,000.
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