Louisiana Luggage Components manufactures handles for suitcases and other luggage. Depending on the sizw of the luggage piece, attaching each handle to the luggage requires between two and six standard fasteners, which the company has historically produced. The costs to produce one fastener (based on capacity operation of 4,000,000 units per year) are: direct materials $0.08 direct labor 0.06 variable factory overhead 0.04 fixed factory overhead 0.07 total $0.25 Fixed factory overhead includes $100,000 of depreciation on equipment for which there is no alternative use and no market value. The balance of the fixed factory overhead pertains to the salary of the production supervisor, Jeff Wittier. Wittier has a life timeemployment contract and the skills that could be used to replace Brenda Gibbons, supervisor of floor maintenance. She draws a salary of $50,000 per year but is due to retire from the company Saratoge Suitcase Co. recently apporached Louisiana Luggage Components with an offer to supply all required fasteners $0.19 per unit. Anticipated slaes demand for the coming year will require 4,000,000 fasteners a. Identify the costs that are relevant in this outsourcing decision. b. What is the total annual advantage or disadvantage (in dollars) or outsourcing the fasteners rather than making them? c. What qualitative factors should be taken into account in making this decision?
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