Sheridan Camera Company currently manufactures the lenses used in all of the digital cameras that it produces. The annual production costs for 5,000 lenses are as follows:

Material (Glass) Cost $ 7 per lens Labor Cost $ 6 per lens Overhead Cost $ 2 per lens Batch-level set-up costs for the year $ 5,000 / yr Product-level Managers Annual Salary $ 20,000 / yr Facility costs (portion of factory insurance, taxes and $ 12,000 / yr depreciation allocated to the cost of camera lenses)

An outside glass company has offered to supply 5,000 lenses to Sheridan for $16 each. If Sheridan outsources the lenses, it will be able to rent out the idled factory space for $16,000 per year. If Sheridan outsources lenses, the product manager position will not be eliminated since it is still needed to oversee the assembly of the cameras. If Sheridan outsources lenses, the portion of facility costs allocated to lenses will have to be re-allocated to the cost of the rest of the camera since factory insurance, taxes and depreciation are fixed costs.

Required: a) List which cost items are not relevant to this outsourcing decision? b) Identify any opportunity costs associated with this decision. c) Prepare a quantitative analysis that indicates whether or not the lenses should be outsourced.