The Consumer Products division of Sweet Dreams has been struggling lately. Management has noticed a steady level of losses being reported, and is concerned about how to turn the division around. The division manager reports that the production of Lamps is causing the issue. As part of an in-depth analysis, management wants you to evaluate the following possible solution: Purchasing rather than producing components.
One of the essential parts of the lamps (the socket) has been produced in-house for a long time; however, management is aware that there are companies that would be able to supply the sockets―and potentially generate significant savings for the company. Below is information relating to the options of whether to purchase or produce the sockets:
Cost to purchase the sockets: $6/socket (ordering costs are included in this amount)
Would it be cheaper to purchase the sockets or continue producing them in-house?

Question

The Consumer Products division of Sweet Dreams has been struggling lately. Management has noticed a steady level of losses being reported, and is concerned about how to turn the division around. The division manager reports that the production of Lamps is causing the issue. As part of an in-depth analysis, management wants you to evaluate the following possible solution: Purchasing rather than producing components.
One of the essential parts of the lamps (the socket) has been produced in-house for a long time; however, management is aware that there are companies that would be able to supply the sockets―and potentially generate significant savings for the company. Below is information relating to the options of whether to purchase or produce the sockets:
  Cost to purchase the sockets: $6/socket (ordering costs are included in this amount)
Would it be cheaper to purchase the sockets or continue producing them in-house?

Quizplus · Accepted Answer

The Answer of The Consumer Products division of Sweet Dreams has been struggling lately. Management has noticed a steady level of losses being reported, and is concerned about how to turn the division around. The division manager reports that the production of Lamps is causing the issue. As part of an in-depth analysis, management wants you to evaluate the following possible solution: Purchasing rather than producing components.
One of the essential parts of the lamps (the socket) has been produced in-house for a long time; however, management is aware that there are companies that would be able to supply the sockets―and potentially generate significant savings for the company. Below is information relating to the options of whether to purchase or produce the sockets:
  Cost to purchase the sockets: $6/socket (ordering costs are included in this amount)
Would it be cheaper to purchase the sockets or continue producing them in-house?

The Consumer Products Division of Sweet Dreams Has Been Struggling