Question
A company is considering outsourcing its production to a third-party manufacturer. The current cost structure for in-house production includes direct materials of $20 per unit,
A company is considering outsourcing its production to a third-party manufacturer. The current cost structure for in-house production includes direct materials of $20 per unit, direct labor of $15 per unit, and variable overhead of $5 per unit, with fixed overhead costs of $50,000 per month. The third-party manufacturer offers to produce the product at a cost of $35 per unit. Calculate the relevant costs of producing in-house versus outsourcing and discuss the factors the company should consider in its decision-making process, including qualitative factors beyond cost savings.
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