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