Expected annual sales of tools (in units)	730,000
Average selling price of tools	$11
Price quoted by Taiwanese company, in New Taiwanese Dollars (NTD)	27,300
Current exchange rate	9,100 NTD = $1
Variable manufacturing costs	$3.30 per unit
Incremental annual fixed manufacturing costs associated with the new product line	$300,000
Variable selling and distribution costs	$0.50 per unit
Annual fixed selling and distribution costs	$300,000

Selling and distribution costs are the same regardless of whether the tools are manufactured in Maryland or imported.

Requirement 1. Should Yard Growers Corp manufacture the 730,000 garden tools in the Maryland facility or purchase them from the supplier in Taiwan? Explain.

The cost of manufacturing 730,000 garden tools in the Maryland facility is				and the cost of purchasing
730,000 garden tools from the Taiwan supplier is		.

Garden Gnome Corp	should	purchase the garden tools from the Taiwan supplier because it is		less
than the relevant costs to manufacture the garden tools in Maryland.

Requirement 2.

Corp believes that the U.S. dollar may weaken in the coming months against the New Taiwanese Dollar and does not want to face any currency risk. Assume that Yard Growers Corp can enter into a forward contract today to purchase 27,300 NTD for $4.40. Should Yard Growers Corp manufacture the 730,000 garden tools in the Maryland facility or purchase them from the Taiwan supplier? Explain.

Garden Gnome Corp	should	manufacture the garden tools in Maryland because the relevant costs of
to manufacture the garden tools in Maryland is			less	than the cost of		to purchase them.

Requirement 3. What are some of the qualitative factors that Garden Gnome Corp should consider when deciding whether to outsource the garden tools manufacturing to Taiwan? (Select four that apply.)

Fluctuations in the value of the NTD relative to the U.S. dollar

Delivery lead times

Quality

Negative public and media reaction to not providing jobs in Maryland