Clear Skin, Inc., makes pump liquid soap dispensers. It currently makes all of the components that go into the pump dispenser on its high-end extrusion machines. A competitor has offered to supply the pressure valve that controls the soap flow for 25% less than it costs Clear Skin to make it. Outsourcing would add to assembly time, driving those costs from the current $325,000 of labor to $375,000. Machining costs would go down 10%. The total cost picture for the product for a year in which the company makes 25,000,000 units internally (without outsourcing) is in the table below.

REQUIRED:

a. Should Clear Skin make or buy this part?

b. What business risks should the company consider? Remember, the flow control valve is a critical component of the final product.

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Clear Skin, Inc. Costs for 25,000,000 Bottles Plastic for bottle S375,000 Pump materials SS00,000 Flow control valve S125,000 Feeder tube S250,000 Labor S25,000 Nachine costs S75000 Other overhead S250,000 Total Costs per Batch $2,200,000 Cost per Bottle Made S0.088