3AM Innovations (3AM) is a Buffalo area start-up that has designed a new wearable firefighter technology that improves efficiency and increases firefighter safety during critical events. Thanks to some highly effective sales and marketing campaigns their sales projections suggest that they will need to produce 126,000 wearable firefighter tracking devices this year. Youve been tasked with determining the most effective option for producing these individual firefighter tracking devices, and have collected the following information to help your decision making.

Direct material costs are $6.75 per unit Direct manufacturing labor costs are $3.67 per unit Variable manufacturing overhead costs are $1.82 per unit Products are scheduled to be delivered at the end of each month (i.e. in equal shipments of 10,500 units, or one batch, each month). Therefore, inspection, material handling and related costs for each production batch are $200 per batch produced. Since there is no established manufacturing lines yet, the company will need to lease the necessary manufacturing equipment for $5,000 for the entire year Costs related to the manufacturing plant include the fixed costs for rental fees, taxes, and insurance which totals $45,000 for the entire year

While you were investigating these costs, you spoke with a contract manufacturing firm, who suggested that they could manufacture these devices for your organization (i.e. you could outsource production to this firm). 3AM would be able to purchase an unlimited number of units at a cost of $12.46 per unit. If 3AM decides to outsource production they will not incur the costs for inspection, material handling, and related items.

(a) [2 points] If 3AM decides to outsource production of their wearable devices, rather than produce these units in-house, then 3AM would maintain the lease on their production facility, however the facility would remain idle. If this is the case, should they accept the outside companys offer to produce these 126,000 items needed? (b) [2 points] Sales projections come with an inherent amount of uncertainty. If the sales projections are in fact incorrect, then 3AM may only sell 75,000 units this year. The company would still make monthly deliveries to their customers and will therefore continue to produce 12 batches of parts in the year. Similarly, if they choose to outsource the factory will once again remain idle. In this lower demand scenario, should 3AM outsource their production or make the product in-house?

(c) [2 points] Consider once again, the inherent uncertainty in sales projects. If business continues to grow then they may actually need to produce 200,000 units next year. Once again, 3AM will produce and distribute these devices in equal monthly batches and shipments and if they choose to outsource would maintain an idle production facility. If this is the case, then what would the purchase cost per unit need to be in order for 3AM to be indifferent to the decision about making the units in-house or purchasing them from the outside vendor?

(d) [2 points] Assume finally, that if production of the wearable devices is outsourced that the facilities will be repurposed to manufacture additional accessories, such as armbands and helmet clips that would ensure that these wearable units could be securely attached to firefighters gear without disrupting their work. If this were to happen, then 3AM would be able to increase the selling price of their wearable devices by $10 (that is charge an additional $10 per unit sold). This would require an additional investment in the manufacturing facility, including $9 in variable costs per unit and $8,000 in fixed costs. If the total number of units to be manufactured remains the same and each unit is sold with one accessory, should 3AM choose to outsource and incur these additional costs to launch their accessories line? 2. [2 points] Your company has just purchased a new asset for $940,000. The