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Initech Corporation, a leading provider of circuit boards for industrial machinery applications, has just launched their newest product offering. The project team is currently in the process of re-evaluating their manufacturing choices as the addition of this new product to their existing operations has resulted in the facility operating at peak capacity, leaving only limited opportunities for future expansion. The project team is focused on identifying the best option for board customization operations. Initech has received a quote for services from SoPark, an electronics contract manufacturer located in Buffalo for customizing board components. Initech can purchase customized boards from SoPark for $4.80 per board. Additional details of the outsourcing and in-house production options are provided below.

Option 1: Outsourcing to SoPark In this scenario, Initech estimates that they would reduce direct labor and variable overhead costs of their existing processes by 15%. Further direct material would reduce by 20% Option 2: In-house production at Initech In this scenario, Initech would continue to operate at peak capacity. If Initech produces 100,000 units each year they have estimated their production costs for one unit to be as follows: $7.50 in direct materials, $5.00 in direct labor, $0.20 in fixed variable manufacturing overhead and $3.80 in variable manufacturing overhead.

(a) Should Initech outsource their board customization activities to SoPark? (i.e. should they accept the outsourcing offer?) (b) What is the maximum unit price that Initech should be willing to pay SoPark?

DO NOT USE EXCEL AND SHOW FULL WORKING STEPS - THIS INCLUDES ALL FORMULAS USED TO DERIVE ANSWER