CHAPTER 10 Cost–volume–profit analysis 461Spa Company’s unit cost of manufacturing pumps is $83.75 per unit, including $17.25 of
allocated fixed overhead (primarily depreciation of equipment). Also, the company has spent
an average of $22 (labour and parts) repairing each pump returned. Spa Company can purchase
pumps for $92.50 per pump.During 2017, Spa Company plans to sell 12 800 plunge pools (each pool requires one pump).
Required
a. Determine whether Spa Company should make or buy the pumps, and the amount of cost
savings arising from the best alternative.
b. What qualitative factors should be considered in the outsourcing decision?References
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Acknowledgements
Photo: © Maksym Poriechkin / Shutterstock.com.