Question # 1 - TOTAL COST ANALYSIS - ABC Plastics bid for a 3 year contract
Which of Insourcing or Outsourcing is cheaper and by how much?
INSOURCING:
Machinery: $ 10,000 over the life of the contract			Materials : $ .05 per unit
Labour: $.045 per unit			Supervision: $ .0165 per unit
Design: $ 30,000			Overhead: $ .03 per unit
OUTSOURCING: bid for 200,000 parts in yr. 1; 300,000 parts in yr. 2; 500,000 parts in yr. 3
Purchase price: $ .10 per unit			Shipping + Handling: $ .01 per unit
Inventory Charges: $ .005 per unit			Adminstration: $ 20 per month
	INSOURCING Item	INSOURCE # 1 Cost	OUTSOURCING Item	OUTSOURCE # 1 Cost
Direct Costs	Direct Material	$0.0500	Purchase price	$0.1000
	Direct labor	$0.0450	Freight costs	$0.0100
	Freight costs		Inventory	$0.0050
Indirect costs	Supervision/Admin.	$0.0165	Purchasing/Admin.	$0.0007	$20 x 36 months
$30,000	Supplies/design	$0.0300	Receiving
	Maintenance		Quality control
$10,000	Depreciation	$0.0100
	Fixed overhead	$0.0300
Total Cost per unit:		$0.1815		$0.1157
	Savings per unit:	$0.06578	Total savings:	$65,780