Mohave Corp. is considering outsourcing production of the umbrella tote bag incl

Question

Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from Willow Co. to produce 8,100 units per year for $8.5 each. Mohave has the following information about its own production of the tote bags:

Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from Willow Co. to produce 8,100 units per year for $8.5 each. Mohave has the following information about its own production of the tote bags:

Explanation / Answer

buying cost of 8,100 units = 8100*8.5+2*40%*8,100-

=68,850+6,480-$ 10,000

= $ 75,330

making cost = 8,100*9 =$ 72,900 so making is the best option

b)recalculation of decision when oppertunity cost is $ 10,000

buying cost of 8,100 units = 8100*8.5+2*40%*8,100-$ 10,000

=68,850+6,480-$ 10,000

= $ 65,330

making cost = 8,100*9 =72,900

so buying is the best option

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