(Outsourcing) Handy Grab Inc. manufactures handles for suitcases and other luggage. Attaching each handle to the luggage requires two to six standard fasteners, which the company has historically produced. The costs to pro¬ duce one fastener (based on capacity operation of 4,000,000 units per year) are:

The fixed factory overhead includes $200,000 of depreciation on equipment for which there is no alternative use and no market value. The balance of the fixed factory overhead pertains to the salary production supervisor who has a lifetime employment contract and skills that could be used to displace the supervisor of floor maintenance who draws a salary of $50,000 per year but is due to retire from the company.
CarryAll Corp. recently approached Handy Grab with an offer to supply all required fasteners for $0.13 per unit. Anticipated sales demand for the coming year will require 4,000,000 fasteners.

a. Identify the costs that are relevant in this outsourcing decision.

b. What is the total annual advantage or disadvantage (in dollars) of out¬ sourcing the fasteners rather than making them?

c. What qualitative factors should be taken into account in making this de¬ cision?

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Direct material $0.04 Direct labor 0.03 Variable factory overhead 0.02 Fixed factory overhead 0.07 Total $0.16