Problem 3

Olympic Products Inc. manufactures and distributes barbecue grills. The company normally sells 1,000 of these grills each month for a price of $140 each. The material cost for a grill is $44 and the direct labor is $22. The variable overhead cost is $13 per grill, and the fixed overhead cost is $30,000 per month. A contract manufacturer has approached the company and offered to supply the grills ready to sell for $85 each. The company management believes that if it accepts this offer, Olympic Products will be able to lease unused factory space for $10,000 per month.

Perform a make-versus-buy analysis.