Question
Ping GPS produces various GPS devices. Their vision is to be a global leader in their market and to have products that are of superior
Ping GPS produces various GPS devices. Their vision is to be a global leader in their market and to have products that are of superior quality and great value. Ping currently manufactures all its components on its own. However, an outside supplier with a strong reputation for quality has offered to provide a state of the art gyroscope to be used in all of Pings devices at a price of $75 per unit. To evaluate this offer, the president of Ping, Whitney Humphry, has provided you with the following information relating to its own cost of producing the gyroscope internally:
Per Unit | |
Direct Materials: | $34 |
Direct Labour: | 28 |
Variable Manufacturing Overhead: | 8 |
Fixed Manufacturing Overhead, traceable: | 7 |
Depreciation on special equipment: | 10 |
Fixed Manufacturing Overhead, common: | 8 |
Total Cost: | $95 |
The special equipment has no resale value, or alternative uses. Further, there is no alternative use for the facilities now being used to produce the gyroscope, should the outsider suppliers offer be accepted. Given the information provided, prepare a summary for Whitney on whether the outsider suppliers offer should be accepted from both a quantitative and qualitative perspective.
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