Chapter 13, Problem 13E

Exercise 6-13A    Outsourcing decision affected by opportunity costs

Omron Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 10,000 containers follows:

Unit-level materials	$ 7,500
Unit-level labor	8,250
Unit-level overhead	5,250
Product-level costs*	13,500
Allocated facility-level costs	$33,000
*One-third of these costs can be avoided by purchasing the containers.

Russo Container Company has offered to sell comparable containers to Omron for $3.00 each.

Required

a.    Should Omron continue to make the containers? Support your answer with appropriate computations.

b.    Omron could lease the space it currently uses in the manufacturing process. If leasing would produce $8,000 per month, would your answer to Requirement a be different? Explain.