Harris Company Currently Produces a Component That It Uses in Making

question 118

Essay

Harris Company currently produces a component that it uses in making some of its products.Harris has calculated the following costs for making the part: $\begin{array}{|l|r|}\hline \text { Unit-level costs } & \\\hline \text { Materials } & \$ 20 \\\hline \text { Labor } & 28 \\\hline \text { Overhead } & 2 \\\hline \text { Allocated facility-level costs } & 10 \\\hline \text { Total cost } & \$ 60 \\\hline\end{array}$ Harris is considering outsourcing the component.A supplier has offered to sell the component to Harris for $52 each.Harris needs 8,000 units each year.
Required: Should Harris outsource the component? Support your answer with appropriate computations.

---

Definitions:

Opportunity Cost

The financial loss associated with rejecting the subsequent preferable choice when deciding or selecting amongst various options.

Specialization

The process of focusing on and becoming expert in a particular subject or skill, or of businesses, regions, or nations concentrating on producing certain goods or services.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision, essentially what is given up when choosing one option over another.

Specialization

The practice of focusing effort on a particular field or discipline, leading to increased efficiency and expertise in that area.