In order to have control over the creative nature of its packaging, Method decides to manufacture (instead of outsourcing) some of its more creative soap dispensers. The company has been approached by a plastic container manufacturer with a proposal to provide 500,000 Mickey and Minnie Mouse hand wash dispensers.

Method's cost of producing 500,000 of the dispensers is $110,000, broken down as follows.

Direct materials $60,000 Variable manufacturing overhead $12,000 Direct labor $30,000 Fixed manufacturing overhead $8,000 Total $110,000

Instead of making the dispensers at an average cost per unit of $0.22 ($110,000 500,000), Method has an opportunity to buy the dispensers at $0.215 per unit. If the dispensers are purchased, all variable costs and one-half of the fixed costs will be eliminated.

Instructions

a. Submit an incremental analysis showing whether Method should make or buy the dispensers.

b. Will your answer be different if the released productive capacity resulting from the purchase of the dispensers will generate additional income of $25,000?

c. What additional qualitative factors might Method need to consider?