Make or Buy

A company in Malaysia manufactures Baskets. However, CEO Ann is considering an offer from a subcontractor to provide 2,000 units of product Homemade Baskets for $120,000. If a gift company does not purchase these parts from the subcontractor, it must continue to produce them in-house with these costs:

Costs per Unit Direct materials $28 Direct labor 18 Variable overhead 16 Allocated fixed overhead 4

Should this company accept the offer from the subcontractor? Why or why not? Include a consideration of both financial and nonfinancial factors.

Total costs to produce Homemade Baskets in-house = ($28 + $18 + $16)/unit x 2,000 units = $124,000 Total costs to purchase the units from subcontractor = $120,000 Saving = $124,000 - $120,000 = $4,000

Qualitative Considerations:

1- Should this company accept the offer from the subcontractor? Why or why not? Include a consideration of both financial and nonfinancial factors. 2. How does the quality of product compare, insourcing vs. outsourcing? 3- Are there alternative (i.e., better) uses of the available capacity? 4- Will outsourcing allow information leakage regarding your product ? 5- Will outsourcing cause an increase in unemployment?