Holtz manufactures electronic printed circuit boards (PCBs) for cellular phones. Holtz has received an offer from an outside supplier to provide electronic soldering for Holtzs cell phone product line. The quoted price is $4.80 per unit. Holtz is interested in this offer since its own soldering operation is at peak capacity.

Outsourcing Option

Holtz estimates that if the suppliers offer were accepted, direct labor and variable overhead costs would be reduced by 15%, and the direct material cost would be reduced by 20%.

In-House Option

Cell phones are sold for $20 per unit, to a distributor. Fixed overhead charges are $20,000. The following table summarizes unit costs to for a production batch of 100,000 cell phones

Direct Materials	7.50
Direct Labor	5.00
Manufacturing Overhead*	4.00
Total	16.50

* includes variable and fixed costs

a) Should Holtz accept the outside suppliers offer?

b) What is the maximum unit price that Holtz should be willing to pay the outside supplier?