A Company currently manufactures a certain part. The annual production costs for 5,000 parts are as follows:
Material Cost $5 per unit
Labor Cost $4 per unit
Overhead $1 per unit
Batch level set up costs for the year $5,000
Product level manager's salary $18,000
Allocated facility level costs $12,000
A supplier has offered to provide 5,000 units of the component for $13 each. If the company outsources the part production, it will be able to rent out the idled factory space for $1,000 per month and terminate the product manager.
Required: 1) Which costs are not relevant to this outsourcing decision? 2) Identify any opportunity costs associated with this decision. 3) Prepare a quantitative analysis that indicates whether the component should be outsourced. 4) What other factors that should be considered when you consider the make-buy-mix decision?