The ABC Company (Example 7.5) has identified another potential supplier for the molded plastic parts. The new supplier has bid $0.08 per part but also will impose a ship-ping and handling charge of $0.015 per unit. Additional inventory handling charges should amount to $0.007 per unit. Finally, purchasing costs are estimated at $25 per month for the length of the 36-month contract.
a. Calculate the total costs for the new supplier. Which is cheaper: insourcing or outsourcing with the new supplier?
b. Suppose the three-year volume is expected to rise to 1.5 million, rather than 1 million, molded plastic parts. Recalculate the total costs associated with in-sourcing. What explains the difference?
c. What other factors, other than costs, should ABC consider when deciding whether to make the molded parts in-house?

  • CreatedApril 10, 2015
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