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Chiwen, Inc. is considering whether to make hard drives for its computers internally or to...

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Accounting

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Chiwen, Inc. is considering whether to make hard drives for its computers internally or to buy them from an outside supplier. The annual production data for Chiwen in making hard drives follows: Internal cost of making hard drives 50,000 hard drives per year Chiwen has been negotiating with an outside supplier to provide hard drives. After several discussions, the supplier has agreed to a price of $50 per unit. The agreement includes a four-year contract with a minimum of 50,000 units per year. 1. If Chiwen outsources the production of hard drives, the $100,000 salary of the production supervisor will be saved. The remaining fixed manufacturing overhead costs are depreciation expenses which cannot be avoided after outsourcing hard drive production. All other costs including direct materials, direct labor, and variable manufacturing overhead will be saved. Assume that the quality of hard drives will be the same. Should Chiwen outsource its production of hard drives? 2. Assume that Chiwen will save an additional $300,000 by discontinuing the lease of the factory after outsourcing. Should Chiwen outsource its production of hard drives? 3. What are the qualitative issues that Chiwen should consider with regards to this outsourcing decision

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