The ABC Company (Example 7.5) has identified another potential supplier for the molded plastic parts. The new supplier has bid $0.08 per part but also will impose a ship ping and handling charge of $0.015 per unit. Additional in ventory handling charges should amount to $0.007 per unit. Finally, purchasing costs are estimated at $25 per month for the length of the 36-month contract.

a. Calculate the total costs for the new supplier. Which is cheaper: insourcing or outsourcing with the new supplier?

b. Suppose the three-year volume is expected to rise to 1.5 million, rather than 1 million, molded plastic parts. Recalculate the total costs associated with in sourcing. What explains the difference?

c. What other factors, other than costs, should ABC consider when deciding whether to make the molded parts in-house?