1. Power Notebooks, Inc. plans to manufacture a new line of notebook computers. Management is trying to decide whether to purchase the LCD screens for the computers from an outside supplier or to manufacture the screens in-house. The screens cost $100 each from the outside supplier. To set up the assembly process required to produce the screens in-house would cost $100,000. The company could then produce each screen for $75. The number of notebooks that eventually will be produced (Q) is unknown at this point. a. Set up a spreadsheet that will display the total cost of both options for any value of Q. Use trial-and-error with the spreadsheet to determine the range of production volumes for which each alternative is best. b. Use a graphical procedure to determine the break-even point for Q (i.e., the quantity at which both options yield the same cost).

What are the basic assumptions of CVP analysis?

DBS is also expecting the demand for its top-of-the range devices to increase further from the next year. Given the increase in annual requirement, the production manager is contemplating to start manufacturing the special components in-house to save costs rather than sourcing them from outside.   Given the current purchase price of $9000 per unit, what will the average annual requirement need to be in order to justify making the components in-house if the variable cost of making is $6750 per unit and an upfront fixed cost of $55,000,000 is needed to procure the necessary plant and equipment? However, in the event that the expected increase in demand does not materialize and the demand is actually forecast to drop to 20,000 units next year, then what will be the maximum price per unit that DBS would be willing to pay to the supplier in order to continue buying from them?     Going forward, if it is found to be a better decision to make the components in-house, DBS will then need to…

Prevar Corporation currently purchases components from one of its suppliers. The current purchase price is $1500 per component, with annual purchase volume of 750 units. The ops manager believes that this component could be made inhouse with some minor modifications to the current factory set up. Fixed cost for dedicating a line for this component is estimated at $50,000. Raw materials for the component is estimated at $900, overhead at $200 and it would take 10 hours of labor (at $20 per hour) to produce each component.