A Company Is Planning to Introduce a New Portable Computer $\text { Per case }$

question 58

Essay

A company is planning to introduce a new portable computer to its existing product line. Management must decide whether to make the computer case or buy it from an outside supplier. The lowest outside price is $90. If the case is produced internally, the company will have to purchase new equipment that will yield annual depreciation of $130,000. The company will also need to rent a new production facility at $200,000 a year. At 20,000 cases per year, a preliminary analysis of production costs shows the following:
$\text { Per case }$
$\begin{array}{ll} \text { Dired materials. } & \$ 40.00 \\ \text { Dired labor... } & 32.00 \\ \text { Variable overhead. } & 10.00 \\ \text { Equipment depreciation . } & 6.50 \\\text { Building rental } & 10.00 \\ \text { Allocated fixed overhead } & 7.50 \\\end{array}$

Required:
(1) Determine whether the company should make the cases or buy them from the outside supplier.
(2) What other factors, besides cost, should the company consider?

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Definitions:

Average Amount

The average amount refers to the arithmetic mean of a set of numbers or quantities, obtained by summing them together and then dividing by the count of these numbers.

Amortization Period

The duration of time over which the cost of an intangible asset is incrementally expensed or amortized to a company's financial statements.

Net Cash Inflows

The total amount of money received minus the total amount of money spent over a specific period of time.

Initial Cost

The purchase price of an asset plus all costs to obtain and ready it for use.