The ABC Company had two options for sourcing molded plastic parts, and these options are presented in the table below. Now, the ABC Company has identified another potential supplier for the molded plastic parts. The new supplier has bid $0.0900 per part but also will impose a shipping and handling charge of $0.0200 per unit. Additional inventory handling charges should amount to $0.0010 per unit. Finally, purchasing costs are estimated at $5 per month for the length of the 36-month contract. Note that the forecasted demand is a total of 1 million units over the 36 months.

a. The total cost per unit for the new supplier is $______.(enter your response to four decimal places)

The outsourcing option with the new supplier is more or cheaper than insourcing.

b. Suppose the three-year volume is expected to rise 1.5 million, rather than 1 million, molded plastic parts.

The total cost per unit associated with insourcing is now $________. (enter your response to four decimal places)

What explains the difference?

A. The difference in cost is explained only by the larger volume absorbing the fixed "engineering/design cost."

B. The difference in cost per unit is explained only by the larger volume absorbing the fixed "equipment depreciation."

C. The difference in cost per unit is explained by the larger volume absorbing the fixed "equipment depreciation" and "engineering/design costs."

D. None of the above.

Insourcing option Operating Expenses Direct labor $0.0700 $0.0350 $0.0100 $0.0166 $0.0083 Benefits (50%) Direct material Indirect labor Benefits (50%) $6,000 absorbed over 1,000,000 $0.0060 Equipment depreciation units $0.0700 Overhead $20,000 absorbed over 1,000,000 $0.0200 Engineering/design costs units Total cost per unit Outsourcing option Purchase price Shipping and handling Inventory charges $0.2359 $0.1500 $0.0080 $0.0030 $0.0013 $0.1623 Administrative costs Total cost per unit $0.0736 $73,600 Savings per unit Total savings (1 million units) Insourcing option Operating Expenses Direct labor $0.0700 $0.0350 $0.0100 $0.0166 $0.0083 Benefits (50%) Direct material Indirect labor Benefits (50%) $6,000 absorbed over 1,000,000 $0.0060 Equipment depreciation units $0.0700 Overhead $20,000 absorbed over 1,000,000 $0.0200 Engineering/design costs units Total cost per unit Outsourcing option Purchase price Shipping and handling Inventory charges $0.2359 $0.1500 $0.0080 $0.0030 $0.0013 $0.1623 Administrative costs Total cost per unit $0.0736 $73,600 Savings per unit Total savings (1 million units)