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What qualitative factors need to be considered

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Question - Outsource computations, qualitative factors

Diamond Light Company incurred the following costs to produce 50,000 light switches for the floor lamps in 2016.

Direct materials $100,000

Direct Labor 150,000

Variable manufacturing overhead 80,000

Fixed manufacturing overhead 120,000

Total manufacturing costs $450,000

The ignition Company has offered to supply the switches for $16 per unit. An analysis of the overhead costs has identified that if the switches are outsourced, Diamond Light Company would eliminate $20,000 of fixed costs, and could use the released production capacity to generate additional income of $56,000 from producing a different product.

Required -

A. From a financial perspective, should the light switches be outsourced? Show calculations.

B. What qualitative factors need to be considered in the outsourcing decision?

 

Reference no: EM132649026

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