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The Good Stuff

In: Business and Management

Submitted By fritzburg
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Chapter 2.

(6) A firm is evaluating the alternative of manufacturing a part that is currently being outsourced from a supplier. The relevant information is provided below:

For in-house manufacturing Annual fixed cost = $45,000 Variable cost per part = $140 For purchasing from supplier (outsourced) Purchase price per part = $160

Using this information, determine the break-even quantity for which the firm would be indifferent between manufacturing the part in-house or outsourcing it.

Using Equation 2.1 we compute

Q* = ______FC_______ = $45,000 = 2,250 parts VC2 - VC1 $160 - $140

If demand is greater than 2,250 produce in-house (make) If demand is less than or equal to 2,250 outsource

(7) (a) If demand is forecast to be 2,500 parts, should they make the part in-house or purchase from a supplier?

Whenever the anticipated demand (volume) is greater than Q*, the firm should produce the part in-house. If demand is less than 2,250 then purchase from a supplier (outsource). In this case the part should be made in-house.

b) The marketing department forecasts that the upcoming year’s demand will be 2,500 units. A new supplier offers to make the parts for $150 each. Should the company accept the offer?

Q* = ______FC_______ = $45,000 = 4,500 parts VC2 - VC1 $150 - $140

Whenever the anticipated demand (volume) is less than Q*, the firm should outsource (purchase) the part. Since 2,500 is less than 4,500 the part should be outsourced to the new supplier (accept the offer).

(c) What is the maximum price per part the manufacturer should be willing to pay to the supplier if the forecast is revised to 1,500 parts using the

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