The Davis Forest Company currently makes as many units of Part No. 789 as it needs. David Lin, general manager of the Davis Forest Company, has received a bid from the Garrison Company for making Part No. 789. Current plans call for Garrison to supply 1,010 units of Part No. 789 per year at $56 a unit. Garrison can begin supplying on January 1 , and continue for five years, after which time Davis Forest will not need the part. Garrison can accommodate any change in Davis Forest's demand for the part and will supply it for $56 a unit, regardless of quantity. Jacqueline Tyson, the controller of the Davis Forest Company, reports the costs for manufacturing 1,010 units of Part No. 789 in the accompanying table. (Click the icon to view the manufacturing costs.) (Click the icon to view the additional information.) (Click the icon to view the present value factor table.) Manufacturing costs Requirement 1. Should David Lin outsource Part No. 789? Prepare a quantitative analysis. Determine the relevant operating cash outflows and operating cash savings each year if Part No. 789 is outsourced. Complete the table below. (If an amount is $0, enter "0". Use parentheses or a minus sign for cash outflows.) Now, find the net present value (NPV) of cash inflows and outflows if Part No. 789 is purchased. (Round to the nearest whole dollar. Use parentheses or a minus sign for a negative value.) The net present value is $ David Lin outsource Part No. 789 because the net present value is Requirement 2. Describe any sensitivity analysis that seems advisable, but you need not perform any sensitivity calculations. (Select all that apply.) A. If demand for Part No. 789 decreases, Garrison will supply a lower quantity at the same price. If Davis Forest continues to manufacture the part, the costs it would incur may not decrease as fast with lower quantities of production. So, outsourcing Part No. 789 would be more attractive. B. If demand for Part No. 789 increases, Garrison will supply a higher quantity at a lower price. If Davis Forest continues to manufacture the part, the costs it would incur will increase faster with higher quantities of production. So, outsourcing Part No. 789 would be more attractive. C. If demand for Part No. 789 increases, Garrison will supply a higher quantity at the same price. If Davis Forest continues to manufacture the part, the costs it would incur will not increase as fast with higher quantities of production. So, manufacturing Part No. 789 in-house would be more attractive. D. If demand for Part No. 789 decreases, Garrison will supply a lower quantity at a higher price. If Davis Forest continues to manufacture the part, the costs it would incur will decrease faster with lower quantities of production. So, manufacturing Part No. 789 in-house would be more attractive. Requirement 3. What other factors should Lin consider in making a decision? (Select all that apply.) A. Whether Garrison will deliver Part No. 789 according to the agreed-upon delivery schedule B. Whether customers prefer having the part manufactured in-house compared to the part being manufactured by Garrison C. Whether Garrison will be in a position to accommodate modifications in Part No. 789 if Davis Forest's requirements change D. Whether Garrison will continue in business for the next five years and continue to make Part No. 789 based on Davis Forest's demands E. Whether Garrison will produce Part No. 789 according to the desired quality standards Requirement 4. Lin is particularly concerned about his bonus for the year. The bonus is based on Davis Forest's accounting income. What decision will Lin make if he wants to maximize his bonus for the year? First, determine the additional cost for each of the relevant items on operating income if Part No. 789 is manufactured in-house. Then, add to find the total relevant costs for operating income calculations. Complete the table below
