Making an outsourcing decision Upton Boats Company currently produces a battery used in manufacturing its boats. The company annually manufactures and sells 5,000 units of a particular model of fishing boat. Because of the low volume of activity, Upton is unable to obtain the economies of scale that larger producers achieve. For example, the costs associated with producing the batteries it uses are almost 30 percent more than the cost of purchasing comparable batteries. Upton could buy batteries for $86 each; it costs $110 each to make them. A detailed breakdown of current production costs for the batteries follows:

Based on these figures, Upton's president asserted that it would be foolish for the company to continue to produce the batteries at $100 each when it can buy them for $86 each.
Required
Do you agree with the president's conclusion? Support your answer with appropriate computations.

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Item Unit Cost Total Unit-level costs: Materials Labor Overhead Allocated facility-level costs Total $ 40 25 5 40 $110 $200,000 25,000 200,000 $550,000