A line of furniture is made by the Drazal Company in South Carolina and is being
ID: 432098 • Letter: A
Question
A line of furniture is made by the Drazal Company in South Carolina and is being considered for outsourcing to China. The unit manufacturing costs in the U.S. are:
When produced in China, direct labor will be 60% of the U.S. cost and overhead will also be 60% of the U.S. cost, since it consists mostly of salaries. Materials costs will be 10% lower in China. Transporting the furniture from China will cost $27,000 for seven containers to transport the annual supply of 500 units from the factory in China to the Drazal warehouse in the U.S. by rail, truck and sea. To insure quality, it will cost $12,000 per year to monitor the supplier and inspect the units in China before they are sent. The cost of administering the contract is $5,000 per year.
What are the total costs of supplying this product from China?
Unit Cost of Goods Sold Direct Labor $53 Materials $122 Overhead $49 Total $224Explanation / Answer
Answer:
?Unit costs in china:
Direct Cost for 500 units:
Other costs :
Total cost for supplying this product from china = 44000 + 85500 = $129,500 (Answer)
Hence should not outsource from china.
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