Problem 3 Question The ABC Company had two options for sourcing molded plastic p

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Problem 3 Question The ABC Company had two options for sourcing molded plastic parts, and these cptions are presented in the table below. Now, the ABC Company has identified another potential supplier for the molded plastic parts. The new supplie $0.0600 per part but also will impose a shipping and handling charge of S0.0100 per unit. Additional inventory handling charges should amount to S0.0020 per unit. Finally, purchasing costs are estimated at $40 per month for the leng 36-month contract Note that the forecasted demand is a total of 1 million units over the 36 months. Click the icon to view the total cost analysis for the sourcing decision at ABC. a. The total cost per unit for the new supplier is $.07344.(Enter your response rounded to four decimal places.) The outsourcing option with the new supplier is 1More Info | than insourcing. Insourcing option Operating Expenses Direct labor Benefits (50%) Direct material $0.0800 S0.0400 S0.0100 $0.0057 $0.0029 Indirect labor Benefits (50%) $8,000 absorbed over 1,000,000 units $0.0080 Overhead $0.0400 Engineering design costs $70,000 absorbed over 1,000,000 units S0.0700 S0.2566 Total cost per unit Outsourcing option Purchase price Shipping and handling Inventory charges Administrative costs Total cost per unit $0.1200 S0.0050 S0.0040 S0.0010 $0.1300 Savings per unit Total S0.1266 $126,600 1million units Click to select your answers) and then click Check Answer.

Explanation / Answer

OutSourcing Plan

Purchase Price = $0.0600
Shipping & Handling = $ 0.0100
Inventory Charges = $0.0020
Administrative Costs = ($40/36 months)/1000000 =$ 0.00144
Total Cost per Unit = .0600 + .0100 + .0020 + .00144 = $ 0.07344
Saving per Unit = .2566 - 0.07344 = $ 0.18316

Hence, the new outsourcing option with the new supplier has more savings than insourcing

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