Sherman Manufacturing Company currently manufactures a component used in one of its products. The annual production costs for

$11,300$ components are as follows:

Material cost

Labor cost

Overhead

Batch$-$level set$-$up costs for year

Product$-$level manager's salary

Allocated facility$-$level costs

$7$ per unit

$3$ per unit

$1$ per unit

$$5,700$

$$17,700$

$$11,700$

An outside company has offered to supply $11,300$ units of the component for $$14\mathrm{.}40$ each. If the company outsources the component, it

will be able to rent out the idle factory space for $$2,000$ per month but will not terminate the product manager.

Required:

a$.$ Which 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 the component should be outsourced.

Complete this question by entering your answers in the tabs below.

Prepare a quantitative analysis that indicates whether the component should be outsourced.