Reference no: EM132969618

Ned Flanders Corporation makes 100,000 units per year of a plastic gasket for use in one of its products. Data concerning the unit production costs of one gasket follow:

Direct Materials: $0.15
Direct Labor: $0.10
Variable Mfg Overhead: $0.13
Fixed Mfg Overhead: $0.24
Total Manufacturing Cost per Unit: $0.62

• An outside supplier has offered to sell NFC all of the gaskets it requires. If Flanders Corporation decided to discontinue making and instead buys the gaskets, 25% of the above fixed mfg overhead costs could be avoided.

Assume NFC has no alternative use for the facilities presently devoted to production of the gaskets.

Problem 1: What are two considerations other than money that Flanders should think about before making the decision to make the component versus buying the component?

Problem 2: If the outside supplier offers to sell the gaskets to Flanders for $0.46 each, should NFC accept the offer to buy the gaskets or continue to make them? Fully support your answer using relevant cost analysis.