Question

Containers manufactures a variety of boxes used for packaging. sales of its model a20 box have increased significantly to a total of 430 comma 000430,000 a20 boxes. hamiltonhamilton has enough existing production capacity to make all of the boxes it needs. the variable cost of making each a20 box is $ 0.80$0.80. by outsourcing the manufacture of these a20​ boxes, hamiltonhamilton can reduce its current fixed costs by $ 103 comma 200$103,200. there is no alternative use for the factory space freed up through​ outsourcing, so it will just remain idle. what is the maximum hamiltonhamilton will pay per model a20 box to outsource production of this​ box

Answer 1

Complete Question: in order

Hamilton Containers manufactures a variety of boxes used for packaging. Sales of its Model A20 box have increased significantly to a total of 430,000 A20 boxes. Hamilton has enough existing production capacity to make all of the boxes it needs. The variable cost of making each A20 box is $0.80. By outsourcing the manufacture of these A20 boxes, Hamilton can reduce its current fixed costs by $103,200. There is no alternative use for the factory space freed up through outsourcing, so it will just remain idle

What is the maximum Hamilton will pay per Model A20 box to outsource production of this box?

Begin by identifying the basic formula that is used to determine the indifferent outsourcing cost per unit.

Cost of making A20 boxes = Cost of outsourcing A20 boxes

Variable costs + Fixed costs = Variable costs + Fixed costs

Using the basic formula you determined above solve for the indifferent outsourcing cost per unit.

The maximum Hamilton will pay to outsource production of its A20 boxes is $ _______

Answer:

$1.04

Step-by-step explanation:

If the variable cost per box is $0.80.

The avoidable fixed cost per switch is

`0.24 * ( 103,200 dollars)/(430,000 units)`

Hamilton would be indifferent between outsourcing and making the A20 boxes if the outsourcing price was $1.04 ($0.80 + 0.24) per A20 box. That is sum of fixed and variable cost.

Therefore,

Hamilton pay will pay a maximum price of $1.04 to outsource production of this box.

Answer 2

$1.04 per box

Step-by-step explanation:

total sales of a20 box = 430,000 boxes

variable cost per unit = $0.80

if it outsources the production, then it can reduce fix costs by $103,200

currently the costs of producing the 430,000 boxes = (430,000 x $0.80) + $103,200 = $344,000 + $103,200 = $447,200

so it should be able to pay up to $447,200 / 430,000 boxes = $1.04 per box, although it would be best to pay less.

In this calculation I am assuming there are no other fixed costs in the production of boxes, and that if the facilities are not used, they will not generate any additional fixed costs either (we are not told about any other fixed cost)