Sergo Games produces a variety of action games including a flight simulation game, Airport 10, which sold more than 800,000 copies in the past year. The programs are run on computers, and the company operates an in-house production facility that manufactures and packages CDs for shipment to customers.
In 2017, the production plant prepared 2,600,000 CDs and incurred the following costs:
Units processed 2,600,000
Labor ..............................................$ 900,000
Material ..........................................4,800,000
Supervisory salaries ..............................350,000
Depreciation of equipment ......................420,000
Heat, light, phone, etc. ...........................200,000
Total ............................................$ 6,670,000
Leslie Eastman, an accounting manager, has been given the responsibility to analyze outsourcing the production of CDs. Her report is provided below.
Required
Should production of CDs be outsourced? Unlike Leslie, support your answer with appropriate calculations.