Valerie’s Pen Company produces high quality pens at affordable prices with over 15 different product lines. Most of the manufacturing occurs in Mexico. The top of the line product is a gold pen.
Current production plans call for the manufacture of 1,200 gold pens at an average cost of 185 Pesos. A Chinese manufacturer has offered to produce 400 of the same gold pen at 136 pesos.
If the Chinese offer is accepted, Valerie will cut production of the gold pens from 1,200 to 800. The finance department estimates that the average cost of each gold pen will rise from 185 Pesos to 212.5 Pesos.
a. Should Valerie outsource the manufacture of 400 gold pens to China? Please offer a financial justification.
b. Given your answer in part (a), what additional information from a balanced scorecard perspective and other perspectives would you seek before deciding to outsource the 400 gold pens?