Grouchy Gremlin plc manufactures 4 different and unrelated products, which are called PIES, SIGHS, TEARS and FEARS. The company is considering whether it should outsource the manufacturing of these products or not.

You have examined Grouchy Gremlin's cost structure and have summarised the costs as follows:

i.Variable manufacturing costs per unit are:

PIES $28, SIGHS $34, TEARS $14, and FEARS $24

ii.Dedicated Fixed costs for each product line are: PIES$2,000 SIGHS $10,000

TEARS$12,000FEARS $16,000

iii.General Fixed Costs which would be incurred by the company whether it outsources production or not are estimated at $ 60,000.

iv.Yearly volumes required are:

PIES 2,000 units, SIGHS 4,000 units, TEARS 8,000 units and FEARS 6,000.

Sneaky Suzie has offered to supply Grouchy Gremlin with these products at the following rates:

PIES $24, SIGHS $42, TEARS $20 and FEARS $28

a.Based on COST CRITERIA ALONE, do you advise Grouchy Gremlin to insource or to outsource? (You may outsource/insource the products in any combination as you consider best.) You must use the comprehensive model developed in class.

b.If the relevant dedicated fixed costs were to decrease by 20% if a particular product were outsourced would this make any difference to your answer? Explain and justify your answer.