Free solar limited

Free solar limited is a Mauritian company specialized in the manufacture of solar heaters. The retirement of many company workers has left a skills gap. Although unemployment remains in the country, applicants for jobs appear to lack the skills and motivation for the older workers. Free solar energy limited is finding it difficult to recruit skilled labour and this shortage is being reflected in increased wages and staff costs. Finally, there is insufficient production capacity at free solar energy limited to meet the current demand for the company's products. The company attempts to produce the most profitable combination of its products within this constraint. However, it is unable to completely satisfy market demand.

Outsourcing (means buy from outside)

To address the above weakness, free solar energy limited is considering outsourcing the manufacture of the SolarLite model to an overseas company. Information relevant to this decision is represented below.

Ecosolarsolarplussolarlite

Selling price(Rs) 10000130007000

Variable cost per solar heaters(Rs)7000100004500

Weekly demand of solar heaters(units) 656

Production time per solar heaters(hours)9108

Outsourcer

The potential manufacturer has quoted a production price to Free solar energy limited of Rs 3500 per solar heater. The manufacturing plant is approximately 3000miles from Mauritius.

Production capacity

There are 112 production hours available in total per week at Free solar energy limited ( seven days per week, two eight hours shifts) which can be used for a combination of three product lines.

The weekly overhead costs fare Rs 35,000 per week at Free Solar energy limited. If the production of the SolarLite model is outsourced, it is forecast that overhead costs will fall by Rs 1250 per week. The transportation cost is estimated at Rs 250 for each outsourced SolarLite is produced.

Non financial information

Free solar energy limited is aware about the importance of non-financial information for decision making.

Required:

Solar energy limited is considering outsourcing the SolarLite model to an overseas manufacturer, whilst retaining in-house production of the Ecosolar and Solarplus models.

Evaluate the financial and non-financial case for and against the outsourcing (buy from outside) option. Calculate the best mises, cost to buy/outsource, cost to produce and any other relevant calculations.