Appendix Four (Make or Buy) Objective: Since the demand for packaging material will be high, CC is exploring the possibility of buying the packaging materials from an outside supplier or buying an equipment to produce them inhouse. Scenario: New printing and fabrication equipment can be bought for $2,400,000. The equipment would have a five-year useful life and $ 400,000 salvage value. Alternately, an outside supplier has offered to supply the packaging material at $ 140 per skid under a five-year contract. The cost card for the packaging material is as under for the current level of activity of 55,000 skids. Item Amount Direct materials $ 60.00 Direct labour $ 50.00 Overhead $ 30.00 Total cost per unit $ 140.00 Breakdown of overhead cost is as under: Supplies $ 15.00 Supervision 10.00 Depreciation 15.00 General Overhead 20.00 Supervision is directly traceable to manufacturing activity. The new equipment would reduce direct labour and the supplies component of variable overhead by 23%. Supervision cost will increase by 15 %. Direct materials would not be affected by the installation of the new equipment. General overhead will remain unaffected and there is no opportunity cost for the space currently available. Depreciation of the equipment will be due to usage of the equipment for manufacturing of the proposed volume of 55,000 skids. Methodology: The group would analyze the net advantage or disadvantage of buying the equipment. BTF has internal funds to buy the equipment and would not need to borrow.