Harris Company Currently Produces a Component That It Uses in Making

question 114

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.

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Definitions:

"New Normal"

Describes a previously unfamiliar situation that has become standard or expected, often used in the context of changes in societal or economic conditions.

Production Sectors

The division of an economy into different groups or areas of production, such as agriculture, manufacturing, and services.

Planning Fallacy

The tendency for people and organizations to underestimate the time, costs, and risks of future actions and overestimate the benefits.

Bottlenecks

Points of congestion or blockage in a production process or system that lead to inefficiencies and delays.