The Make-or-Buy Decision

Assume that HighValu Inc., as described, currently purchases the chair cushions for its lawn set from an outside vendor for $15 per set. HighValu's chief operations officer wants an analysis of the comparative costs of manufacturing these cushions to determine whether bringing the manufacturing in-house would save the firm money. Additional information shows that if HighValu were to manufacture the cushions, the materials cost would be $6 and the labor cost would be $4 per set and that it would have to purchase cutting and sewing equipment, which would add $10,000 to annual fixed costs.

Required Should HighValu make the cushions or continue to purchase them from the vendor?