2. The ABC Company (Example 10.1) has identified another potential supplier for the molded plastic parts. The new supplier has bid $0.08 per part, but also will impose a shipping and handling charge of $0.015 per unit.

Additional inventory handling charges should amount to

$0.007 per unit. Finally, purchasing costs are estimated at

$25 per month for the length of the 36-month contract.

a. (*) Calculate the total costs for the new supplier.

Which is cheaper, insourcing or outsourcing with the new supplier?

b. (**) Suppose the three-year volume is expected to rise to 1.5 million, rather than 1 million, molded plastic parts. Recalculate the total costs associated with insourcing.What explains the difference?

c. (**) What other factors, besides costs, should ABC consider when deciding whether or not to make the molded parts in-house?