Should tanner appliance purchase

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Reference no: EM13256973

Make or buy Tanner Appliance Company manufacturers 12,000 units of part M-4 annually. The part is used in the production of one of its prinicpal products. The following unit cost information is available on part M4:

Direct material $11
Direct Labor 9
Unit-related support 4
Batch-related support 5
Product-sustaining 2
Facility-sustaining support 2
Allocated corporate support 5
Total costs $38

A potential supplier has offered to manufacture this part for Tanner Appliance for $30 per unit. If Tanner Appliance outsources the production of part M4, 50% of batch related and 80% of product-sustaining activity resources can be eliminated. Furthermore, the production facility now being used to produce this part can be used for a fast-growing new product line that would otherwise require the use of a neighboring facility at a rental cost of $20,000 per year.

a. Should Tanner Appliance purchase part M4 from the outside supplier?
b. What costs are relevant for the decision?
c. What additional factors should Tanner consider?

Reference no: EM13256973

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