One of your Taiwanese suppliers has bid on a new line of molded plastic parts that is currently being assembled at your plant. The supplier has bid $$0\mathrm{.}10$ per part, given a forecast you provided of $100,000$ parts in year $1$; $400,000$ in year $2$; and $700,000$ in year $3.$ Shipping and handling of parts from the supplier$$s factory is estimated at $$0\mathrm{.}03$ per unit. Additional inventory handling charges should amount to $$0\mathrm{.}003$ per unit. Finally, administrative costs are estimated at $$10$ per month.

Although your plant is able to continue producing the part, the plant would need to invest in another molding machine, which would cost $$10,000.$ Direct materials can be purchased for $$0\mathrm{.}05$ per unit. Direct labor is estimated at $$0\mathrm{.}05$ per unit plus a $50$ percent surcharge for benefits; indirect labor is estimated at $$0\mathrm{.}013$ per unit plus $50$ percent benefits. Up$-$front engineering and design costs will amount to $$30,000.$ Finally, management has insisted that overhead be allocated if the parts are made in$-$house at a rate of $100$ percent of direct labor cost. The firm uses a cost of capital of $15$ percent per year.

Calculate the difference in NPVs between the Make and Buy options. Express all costs as positive values in your calculations. It is suggested to use the NPV function in Excel.

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

Should you continue to produce in$-$house or accept the bid from your Taiwanese supplier?

multiple choice

Accept the bid

Produce in$-$house