Sherman Manufacturing Company Currently Manufactures a Component Used in One

Sherman Manufacturing Company currently manufactures a component used in one of its products. The annual production costs for 10,000 components are as follows:
$\begin{array}{lc}\text { Material cost } & \$ 5 \mathrm{per} \text { unit } \\\text { Labor cost } & \$ 4 \text { per unit } \\\text { overhead } & \$ 1 \mathrm{per} \text { unit }\\\text { Batch-level set-up costs for year } & \$ 5,000 \\\text { Product-level manager's salary } & \$ 18,000 \\\text { Allocated facility-level costs } & \$ 12,000\end{array}$ An outside company has offered to supply 10,000 units of the component for $12.50 each. If the company outsources the component, it will be able to rent out the idle factory space for $1,000 per month but will not terminate the product manager.Required:Which items are not relevant to this outsourcing decision?Identify any opportunity costs associated with this decision.Prepare a quantitative analysis that indicates whether the component should be outsourced.

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The batch-level set-up costs for the yea...

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