Tubs of Fun produces outdoor hot tubs. They currently manufacture the pumps for the tubs in house. They have discovered that 40% of the pumps fail within their 12 month warranty period, resulting in large warranty costs. Because of this they are looking at buying the pumps from a manufacturer that will also be responsible for any warranty costs on the pumps. Tubs of Fun's cost to manufacture is $80 per unit, including $18 of allocated fixed overhead (primarily depreciation of plant and equipment). The company has spent an average of $20 (labor and parts) repairing each pump returned. Tubs of Fun can purchase the pumps from a reputable manufacturer for $85 per pump.
Tubs of Fun plans to sell 15,000 hot tubs in 2018 (each hot tub contains one pump). Should the company make or buy the pumps. What is the cost savings related to your decision? What qualitative factors should be considered?