Gabriela Manufacturing must decide whether to insource(make) or outsource (buy) a new toxic-free carpet cleaner thatworks with its Miracle Carpet Cleaning Machine. If it decides toinsource the product, the process would incur $300,000 of annualfi xed costs and $1.50 per unit of variable costs. If it is outsourced,a supplier has off ered to make it for an annual fi xed cost of$120,000 and a variable cost of $2.25 per unit in variable costs.(a) Construct a base-case spreadsheet model that shows bothof these alternatives side-by-side. Use the same number ofunits (stored in a single cell) to drive the calculations.(b) If the expected annual demand for the new cleaner is300,000 units, what would you recommend that GabrielaManufacturing do? Provide evidence to support yourrecommendation.(c) Use Goal Seek to fi nd the indiff erence point (where totalcosts are equal) between these two alternatives.
Gabriela Manufacturing must decide whether to insource
(make) or outsource (buy) a new toxic-free carpet cleaner that
works with its Miracle Carpet Cleaning Machine. If it decides to
insource the product, the process would incur $300,000 of annual
fi xed costs and $1.50 per unit of variable costs. If it is outsourced,
a supplier has off ered to make it for an annual fi xed cost of
$120,000 and a variable cost of $2.25 per unit in variable costs.
(a) Construct a base-case spreadsheet model that shows both
of these alternatives side-by-side. Use the same number of
units (stored in a single cell) to drive the calculations.
(b) If the expected annual demand for the new cleaner is
300,000 units, what would you recommend that Gabriela
Manufacturing do? Provide evidence to support your
recommendation.
(c) Use Goal Seek to fi nd the indiff erence point (where total
costs are equal) between these two alternatives.
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