Naka Company produces bluetooth speakers for home or office purposes, sold at a price of $30 per unit. The current production and sales volume is 25,000 per year and its capacity is 30,000 units per year. Naka wants to sign a contract with an electronics store to supply 10,000 units by next year at a cost of $19.

To fulfill the offer, Naka has two options: 1) Insource 5,000 units and outsource another 5,000 units. 2) Outsource all 10,000 units and rent unused capacity to an outside firm for $19,000 per year.

Hereby the manufacturing and other costs: Variable costs per unit: Direct materials $ 11.00; Direct labor 5.50; Factory overhead 3.30; Distribution 1.10; Marketing 0.7

Fixed costs per month: Factory overhead $156,000; Selling and admin $72,000 Naka can buy the speakers from an outside supplier at $19.7 per unit. Additionally, if Naka accepts the contract, the speakers should be specially packed which would increase cost by $0.3 per unit.

Required: 1. Analyze the two options! (8%) 2. What is the best recommendation for Naka? Why? (7%) 3. What should Naka consider before buying speakers from an outside supplier? Mention at least three (3) factors. (5%)