Emery Products Is Deciding Whether to Outsource the Production of a Certain

question 130

Essay

Emery Products is deciding whether to outsource the production of a certain component that is included in all of its products.It currently costs Emery Products $1.20 to make each component in-house.If Emery Products outsources,it can buy the component ready-made for $0.90 each and can shut down the production facilities it is currently using to manufacture the component and save $20,000 a year in fixed costs.Annual requirement for the component is 12,000 units.What is the effect of outsourcing?

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Definitions:

Exclusive Territorial Distributorship

A distribution strategy where a manufacturer grants exclusive rights to distribute its products in a specific territory to a single distributor.

Cease and Desist Order

A legal order issued by a court or government authority demanding that an individual or organization stop a specified activity immediately.

Federal Trade Commission

A US government agency responsible for protecting consumers and ensuring fair competition by preventing anticompetitive, deceptive, and unfair business practices.

Exclusive Dealing

A business agreement in which a distributor or retailer agrees to sell only the products of one company, excluding competitive products.