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Tanner Appliance Company manufactures 12,600 units of part M4 annually. The part is used in the production of one of its principal products. The following unit cost information isavailable on part M4:
Directmaterials $11
Directlabor 9
Unit relatedsupport 4
Batch relatedsupport 5a
Product sustaining support 2
Facility sustaining support 2
Allocated corporate support 5
Totalcosts $38
A potential supplier has offered to manufacture this part forTanner Appliance for $30 per unit. Ifr Tanner Applianceoutsources the production of part M4, 50% of batch related and 80%of product sustaining resources can be eliminated. Furthermore, the production facility now being used to produce thispart can be used for a fast-growing new product line that wouldotherwise require the use of a neighboring facility at a rentalcost of 20,000 per year.
a. Should Tanner Appliance purchase part M4 from theoutside supplier?
b. What costs are relevant for this decision?
c. What additional factors should Tanner consider?
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