Make or Buy

Premium gift 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

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?