Outsourcing (Make vs. Buy) Decision:

SHOW ALL WORK.

Bueter, Giles & Walters Industries, Inc. currently outsources an electrical switch that is a component in one of its gaming products. The switches cost $15 each. During a planning meeting, the company is considering making the switches internally at the following projected annual production costs:

Unit-Level material cost	$3
Unit-Level labor cost	$2
Unit-Level overhead	$1
Batch-Level set-up cost (5,000 units per batch)	$25,000
Product-Level supervisory salaries	$37,500
Allocated facility-level costs	$20,000

Management expects annual demand of 13,000 switches. If the company makes the product, it will hire a production supervisor as indicated above. The company will also have to utilize factory space currently being leased to another company for $24,000 per year. The facility-level costs shown represent an allocation of company overhead that would be assigned to the product if it is made internally. If the management decides not to make the product internally, these facility-level costs would be assigned to other product lines within the business.

Required:

a) Prepare an Outsourcing (Make vs. Buy) analysis to determine whether the company should continue to buy the switches or produce them in-house. I recommend any opportunity costs be treated as a cost of buying. A suggested format is shown below.

Show work and clearly state the conclusion.

	MAKE (13,000 switches)		BUY (13,000 switches)
Relevant Item	Unit (if we can)	Total	Unit	Total

b) Notate the Cost Formula to make the switches at the 13,000 unit level (i.e. Y = A + b(X))