Eastern Company Currently Produces a Component That It Uses in Making

question 140

Essay

Eastern Company currently produces a component that it uses in making some of its products.The company has calculated the following costs for making the component:
$$\begin{array} { l r } \text { Unit-level costs } & \\\text { Materials } & \$ 2 0 \\\text { Labor } & 28 \\\text { Overhead } & 2 \\\text { Allocated facility-level costs } & \underline {10} \\ \text { Total cost } & \underline {\$ 6 0 } \\\end{array}$$ Eastern is considering outsourcing the component.A supplier has offered to sell the component to Eastern for $55 each.Eastern needs 10,000 units each year.If Eastern does outsource the component,it can use the facilities to make another product that would yield a contribution margin of $60,000 per year.
Required:
1)Should Eastern outsource the component? Support your answer with appropriate computations.
2)What qualitative factors should be considered in this decision?

Analyze the influence of culture on moral values and social behavior.

Distinguish between strong and weak situations and their impact on norms for behavior.

Examine the importance of various values within different cultures through empirical research.

Understand the psychological effects of cultural and identity challenges.

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Definitions:

Clean Break

An immediate and clear termination of a relationship or situation, without ongoing entanglements.

Emotional Reactions

The automatic, often unconscious, responses of feelings and emotions to a particular stimulus or situation.

Sympathy

Feelings of pity and sorrow for someone else's misfortune, showing understanding and compassion for their situation.

Close Relationship

A relationship characterized by strong emotional bonds, mutual affection, and significant interdependence between individuals.