Excell Corporation makes thumb drives for use by consumers and businesses. Right now, Excell performs all of the operations for making the thumb drives. It has recently been approached by a memory manufacturer to supply the memory chips for the thumb drives. Current cost to make the memory chips is $1 per unit for a 1-gigabyte drive. Fifty percent of this cost is labor, and 50% machining cost (which includes labor and overhead). The offered price is $0.80 per chip. If the change is made, the machine currently used will be idled 75% of the current utilized time.

REQUIRED:

a. Analyze the current situation (“as is” is to make) vs. the offer from the memory chip manufacturer.

b. What should Excell do? Why?