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Kitchen Rite is considering outsourcing the production

Price: $3.99


Kitchen Rite is considering outsourcing the production of a steel chassis that is used in a kitchen appliance. Two thousand chassis are produced per month. An outside vendor will supply an identical chassis for $9.90. The chassis is manufactured in two steps. A stamping press punches out the part from sheet metal, bends the sides, and cuts holes in it, all in one operation. Then a welding machine welds the corners. Both the welding and stamping machines are used to produce only this one chassis model. The following job order cost sheet summarizes the costs of producing a single chassis.

Cost per Unit
Steel plate $ 4.75
Direct labor:
Stamping ($20 hour) 1.60
Welding ($30 hour) 2.50
Overhead:
Stamping (depreciation) 3.60
Welding (lease payment) 2.15
General plant 5.90
$20.50

and so on ...

Required:
Should Kitchen Rite outsource the chassis? Support your recommendation with a clear financial analysis of the facts.

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