The ABC Company had two options for sourcing molded plastic parts, and these options are presented in the table below. Now, the ABC Company has identified another potential supplier for the molded plastic parts. The new supplier has bid $0.1200 per part but also will impose a shipping and handling charge of $0.0200 per unit. Additional inventory handling charges should amount to $0.0050 per unit. Finally, purchasing costs are estimated at $40 per month for the length of the 36-month contract. Note that the forecasted demand is a total of 1 million units over the 36 months.

Insourcing option
Operating Expenses
Direct labor	$0.0100
Benefits (50%)	$0.0050
Direct material	$0.0200
Indirect labor	$0.0186
Benefits (50%)	$0.0093
Equipment depreciation	$0.0150	$15,000 absorbed over 1,000,000 units
Overhead	$0.0700
Engineering/design costs	$0.0200	$20,000 absorbed over 1,000,000 units
Total cost per unit	$0.1679
Outsourcing option
Purchase price	$0.1100
Shipping and handling	$0.0070
Inventory charges	$0.0070
Administrative costs	$0.0014
Total cost per unit	$0.1254
Savings per unit	$0.0425
Total savings (1 million units)	$42,500

a. The total cost per unit for the new supplier is ___ $ 4 decimal places

The outsourcing option with the new supplier is cheaper or more expensive than insourcing?

b. Suppose the three-year volume is expected to rise to 1.5 million, rather than 1 million, molded plastic parts.

The total cost per unit associated with insourcing is now ___ $. 4 decimal places

What explains the difference?

A.The difference in cost per unit is explained by the larger volume absorbing the fixed "equipment depreciation" and "engineering/design costs."

B.The difference in cost per unit is explained only by the larger volume absorbing the fixed "engineering/design costs."

C.The difference in cost per unit is explained only by the larger volume absorbing the fixed "equipment depreciation."

D.None of the above.

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

A.Whether the manufacture of parts is a core-competency of the firm.

B.What quadrant of their strategic portfolio the part will occupy.

C.The opinion of customers.

D.There are no factors other than cost that should be considered.

E. Both A and B are correct.