AISHU DOES

Layla makes luxury dog crates. During the current year, Layla produced $10,000$ units and incurred the following costs:

Unit$-$level materials costs $(10,000$ @ $$15)$ $ $150,000$

Unit$-$level labor costs $(10,000$ @ $$20)200,000$

Unit$-$level overhead costs $(10,000$ @ $$16)160,000$

Depreciation expenses on equipment$*12,000$

Product$-$level supervisory salaries$**36,000$

$*$The equipment was purchased on January $1$ last year for $$60,000$ and has a current book value of $$48,000,$ a remaining useful life of four years, and a zero salvage value. If the equipment is not used to produce crates, it can be leased for $$8,000$ per year.

$**$ The supervisor will be let go if Layla outsources.

Required:

$1.$ Layla has the opportunity to purchase the crates from an outside supplier for $$60.$ The supplier is willing to hold sufficient inventories to meet Layla's needs. Should Layla outsource the manufacturing of its crates? Why or why not? You must show work to support your answer.

$2.$ At what volume would Layla be indifferent between making the crates and purchasing the crates from the outside supplier?