=1.8. Reconsider the Special Products Company problem presented in Section 1.2.

Although the company is well qualified to do most of the work in producing the limited edition grandfather clocks, it currently lacks expertise in one key area, namely, constructing the timekeeping mechanism for the clocks. Therefore, management now is considering contracting out this part of the job to another company that has this expertise and already has some of its production facilities set up to do this kind of work. If this were done, the Special Products Company would not incur any fixed cost for initiating production of the clocks but would incur a marginal cost of $650 (including its payment to the other company) while still obtaining revenue of $900 for each clock produced and sold.

However, if the company does all the production itself, all the data presented in Section 1.2 still apply. After obtaining an analysis of the sales potential, management believes that 300 grandfather clocks can be sold.

Management now wants to determine whether the make option (do all the production internally) or the buy option

(contract out the production of the time-keeping mechanism) is better.