Kyle Company is considering outsourcing a key component. A reliable supplier has quoted a price of

$65.00

per unit. The following costs of the component when manufactured in-house are expressed on a per unit basis

Direct materials	$23.50
Direct labor	16.40
Variable overhead	25.70
Fixed overhead	6.20
Total costs	$71.80

Requirement

(a)	What assumptions need to be made about the behavior of overhead costs for Kyle in order to analyze the outsourcing decision?
(b)	Should Kyle Company outsource the component?
(c)	What other factors are relevant to this decision?

equirement (a) What assumptions need to be made about the behavior of overhead costs for

Kyle

in order to analyze the outsourcing decision?

The assumption must be made

.

Part 2

Requirement (b) Should Kyle Company outsource the component?

Complete the following analysis of the cost to outsource the key component. (Use a parentheses or minus sign to show a net additional cost of purchasing the key component. Leave unused cells blank.)

Item	Relevant amount
Savings:
Additional costs:
	Total savings (additional costs)

Part 3

Kyle should make outsource the key component. The company will be better of by $-----

per unit.

Part 4

Requirement (c) What other factors are relevant to this decision?

Other relevant factors:

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