A company received a job for the next ve years to produce 20,000 units of a product per year.

A company received a job for the next five years to produce 20,000 units of a product per year. Relevant costs, in $, for a similar product for the same yearly volume from last year are gathered as follows:

Direct materials: 60,000;

Direct labor: 180,000;

Variable overhead: 135,000;

Fixed overhead: 70,000.

Unfortunately, the company expects a $3,000 increase per year in the direct-materials cost, a $10,000 increase per year in the direct labor costs, and a $4,000 increase per year in the variable overhead costs over the next 5 years of production if this product is made in house. The company has the option for outsourcing the product at a purchase cost of $25 per unit. Outsourcing will bring an annual revenue of $35,000 (fixed over the five years) by renting the production facility.

Additionally, $3.50 per unit of the fixed-overhead costs applied to production would be eliminated. Assuming that company has to select only one of these options and a MARR of 15%, use the annual equivalent cost analysis to decide whether the company should make the product or outsource it. Do not use the brute-force approach in your calculations and try to be as efficient as you can. (Hint: Find the unit costs using AEC analysis.)