Outsourcing decision affected by opportunity costs
Pace Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,000 containers follows.
Unit-level materials | $ 6,000 |
Unit-level labor | 6,600 |
Unit-level overhead | 4,200 |
Product-level costs* | 10,800 |
Allocated facility-level costs | 26,400 |
*One-third of these costs can be avoided by purchasing the containers.
Ace Container Company has offered to sell comparable containers to Pace for $2.70 each.
Required
a.Should Pace continue to make the containers? Support your answer with appropriate computations.
b. Pace could lease the space it currently uses in the manufacturing process. If leasing would produce $10,800 per month, would your answer to Requirement a be different? Explain.
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