Multiple Choice
L Ltd can subcontract out one of its components at $18 each. The business can produce the component internally for a total cost of $19 including the allocation of fixed costs at $5 per component. L Ltd has spare capacity. Should it make the component internally or contract it out?
A) Make the component as the variable cost of $14 ($19-$5) for internal production is cheaper than the $18 cost of subcontracting.
B) Subcontract as the total cost of subcontracting at $18 is cheaper than the cost of $19 for internal production.
C) Subcontract as it will be easier.
D) None of the above.
Correct Answer:
Verified
Correct Answer:
Verified
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