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Make or Buy


The manager of AAA Finance is evaluating whether the company’s quarterly newsletter to its clients should continue to be produced in-house or whether it should be outsourced to a firm that specialises in producing newsletters for the finance industry. If the newsletter remains in-house the costs per quarter are $8000 for printing, $10 000 for direct labour and $4000 in overhead. The overhead consists of a portion of the departmental supervisor’s salary which is allocated to the newsletter on the basis of direct labour hours. If the report is produced externally it will cost $3.50 per newsletter for the 4000 copies needed per quarter. REQUIRED: a) Is it cheaper for the newsletter to be produced in-house or outsourced? Show calculations to support your answer. b) Give a reason why any of the above information is not a relevant cost in the decision.