This is Canadian Accounting (Cost Accounting) !! OldeTyme Music Restorations (OTM) manufactures a part that it uses in the restoration of antique pianos and organs. The costs associated with manufacturing this part are:

Direct materials: $6 Direct labour: $30 Variable manufacturing overhead: $12 Fixed manufacturing overhead: $240,000

Classic Music Parts has offered to sell 10,000 of these parts to OTM for a price of $60 per part. OTM estimates that it would able to eliminate 40% of its fixed manufacturing overhead costs if it accepts the offer.

Required:

a) Analyze this outsourcing opportunity from a quantitative perspective (show your work). Which alternative is best for OTM? What is the overall difference between the alternatives?

b) Identify and discuss two qualitative factors that OTM should consider in the evaluation of whether to outsource this part. Explain why each factor is important in this situation. Thumbs Up for correct Answer !