Variable costs per unit in 2009 will be the same as variable costsper unit in 2008.
• Plant rental and equipment lease are annual contracts thatare going to be expensive to terminate and it is expected that it will cost $10,000 for theplant rental contract and $5,000 to terminate the equipment-lease contract.
• 40% of the other manufacturing overhead is variable,proportionate to the direct manufacturing costs. The fixed component of other manufacturingoverhead is expected to remain the same whether the product is manufactured by Avery oroutsourced to Marley
• Avery's just-in-time policy means that inventory isnegligible.
Required:
1. On the basis of the material and labor cost estimates originallycompiled with the Plant Manager's help, should you recommend that the product be producedat Avery or purchased from Marley? Show your calculations.
2. What other factors should you examine before recommending whether Avery should manufacture or outsource the product?