EBK OM
EBK OM
6th Edition
ISBN: 9781305888210
Author: Collier
Publisher: YUZU
Question
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Chapter 6, Problem 7PA

a

Summary Introduction

Interpretation:Decisions needs to be made whether company should go for outsourcing or in-house production.

Concept Introduction: The total cost of production or outsourcing and break-even point are useful quantifiable measures which helps company in making operational decisions which affects the company profits.

b

Summary Introduction

Interpretation:Decisions needs to be made whether company should go for outsourcing or in-house production and todetermine break even quantity.

Concept Introduction: The total cost of production or outsourcing and break-even point are useful quantifiable measures which helps company in making operational decisions which affects the company profits.

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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 = $85,000 Variable cost per part = $110 For purchasing from supplier: Purchase price per part = $120 For this information, use the Break-Even Excel template to find the best decision if the demand is 5,500. Round your answers to the nearest dollar. Total cost of production: $ Total cost of outsourcing: $ The best decision is to . Determine the break-even quantity for which the firm would be indifferent between manufacturing the part in-house or outsourcing it. Use the Excel Goal Seek tool. Round your answer to the nearest whole number.
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A global manufacturer of electrical switching equipment (ESE) is considering outsourcing the manufacturing of an electrical breaker used in the manufacturing of switch boards. The company estimates that the annual fixed cost of manufacturing the part in-house, which includes equipment, maintenance, and management, amounts to $8 million. The variable cost of labor and materials are $11.00 per breaker. The company has an offer from a major subcontractor to produce the part for $16.00 per breaker.a. How many breakers would the electrical switching equipment company need per year to make the in-house option the least costly?b. Assume the subcontractor wants the company to share in the costs of the equipment. The ESE company estimates that the total annual cost would be $5 million, which also includes management oversight for the new supply contract. For this concession, the subcontractor will dropthe per-unit price to $12.00. Under this assumption, how many breakers would the ESE company…
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