Design engineering has created a new item that is to be reviewed by procurement as to whether it should be made or bought. Engineering, sourcing, and planning have determined the following values to assist in the cost (US$) analysis: General Data Estimated annual usage = 25,000 units Inventory carrying cost = 22 % Purchase ordering costs = 145.50 Direct overhead % = 50 % Indirect overhead % = 50% Depreciation rate = 6,500 (absorbed 25,000 units) Design rate=25,000 (absorbed 25,000 units) To determine the best option for the new item, the planners are required to calculate the cost first for the outsourcing option and then for the insourcing option. The source with the lowest cost will provide a significant criterion for the sourcing option. Outsourcing Option The planner began by determining the outsourcing option. After reviewing several suppliers, one was selected as the probable supplier. The planner received the following cost information to assist in the outsource cost estimate. Purchase price 14.25 Setup charge.005 Based on the information, assist the planner solve for the following purchasing costs: 1. Unit cost: 2. EOQ lot size: 3. Unit inventory carrying cost: . 4. Total unit cost: 5. Total annual cost: Shipping and handling.18. General and Administration = .0963 Insourcing Option After discussing the new item cost elements with design engineering, the planner complied the following internal production costs. Direct costs (per unit): Materials = .68 Indirect Costs (unit) Labor = .60 Setup = .051 Overhead = 0.30 Labor.10 General and Administration = 12.5 Based on the information, assist the planner solve for the following production costs: 1. Unit cost: 2. EOQ lot size: 3. Unit inventory carrying cost: 4. Total unit cost: 5. Total annual cost: Cost Summary Assist the planner to summarize the costs associated with both options. Solve for the following costs: 1. Cost savings per unit: 2. Total annual cost saving: Sourcing Option Selection 1. Based on the cost estimates, which source offers the better choice? 2. What other factors does the planner need to review before making the final decision?