Mountain Bikes Unlimited is currently making the heavy-duty gear shifter that it installs on its most popular line of mountain bikes. The company's Accounting Department reports the following costs of making 11,000 shifters each year

Per Unit 11,000 Units

Direct Materials $ 10 $110,000

Direct Labor 4 44,000

Variable overhead 2 22,000

Supervisor's salary 2 22,000

Depreciation of Special Equip. 2 22,000

Allocated General Overhead 6 66,000

Total cost 26 286,000

An outside supplier has offered to sell 11,000 shifters a year to Mountain Bikes Unlimited for a price of only $21 each, or a total of $231,000. The Supervisor of the gear shifter manufacturing process would not be retained if the company stops making the shifters. The special equipment has no salvage value and that it has no other use except making the heavy-duty gear shifters. The allocated costs are common to all items produced in the factory and would continue unchanged, being reallocated to other products, if the shifters were bought from an outside supplier.

REQUIRED:

1. Should the company stop making the shifters internally and buy them from the outside supplier? What is the financial advantage (disadvantage) of this decision?

2. What other factors should Mountain Bikes Unlimited consider when making an outsourcing decision?