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Mohave Corporation is considering outsourcing production of the umbrella tote bag included with some of its products. The company Req $1$

Req $2$

Req$3A$

Compute the difference in cost between making and buying the umbrella tote bag.

Favors Making Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that would generate

$$12,000$ in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag.

Favors Buying

has received a bid from a supplier in Vietnam to produce $8,600$ units per year for $$9\mathrm{.}00$ each. Mohave the following information about

the cost of producing tote bags:

Mohave determined all variable costs could be eliminated by outsourcing the tote bags, while $60$ percent of the fixed overhead cost is

unavoidable. At this time, Mohave has no specific use in mind for the space currently dedicated to producing the tote bags.

Required:

Compute the difference in cost between making and buying the umbrella tote bag.

Based strictly on the incremental analysis, should Mohave buy the tote bags or continue to make them?

$3-$a$.$ Suppose the space Mohave currently uses to make the bags could be utilized by a new product line that would generate $$12,000$

in annual profits. Recompute the difference in cost between making and buying the umbrella tote bag.

$3-$b$.$ Does this change your recommendation to Mohave?

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