Reference no: EM132815660

World Wide Stereo produces various equipment for home theatre and sound systems. One key component in all of the company's products is a module requiring two speakers configured in custom combinations. The firm currently incurs the following costs to make each speaker module:

Direct material 24

Direct labor 16

Variable overhead 10

Fixed overhead 20

Of the per-unit fixed overhead, the firm could avoid $8 if the modules were purchased from a company that has offered to sell an equivalent module for $56. World Wide Stereo produces 20,000 modules annually.

Required:

Question a. Should World Wide Stereo outsource the production of the module? Show calculations.

Question b. World Wide Stereo's vice president estimates that the company can rent out the facilities used to make the modules for $120,000 annually. What should the company do? Show calculations.

Question c. What are some qualitative factors that World Wide Stereo should consider in making the speaker module outsourcing decision?