Las Vegas, Nevada, manufacturer has the option to make or buy one of its component parts. The annual requirement is 20,000 units. A supplier is able to supply the parts for $10 per piece. The firm estimates that it costs $600 to prepare the contract with the supplier. To make the parts in-house, the firm must invest $50,000 in capital equipment, and the firm estimates that it costs $8 per piece to make the parts in-house. Assuming that cost is the only criterion, use breakeven analysis to determine whether the firm should make or buy the item. 1. What is the breakeven quantity? 2. Should the manufacturer Make or Buy? 3. What is the cost savings using your decision in number 2 (above)? Show the total cost for each scenario then the savings amount.

Las Vegas, Nevada, manufacturer has the option to make or buy one of its component parts. The annual requirement is 20,000 units. A supplier is able to supply the parts for $10 per piece. The firm estimates that it costs $600 to prepare the contract with the supplier. To make the parts in-house, the firm must invest $50,000 in capital equipment, and the firm estimates that it costs $8 per piece to make the parts in-house. Assuming that cost is the only criterion, use breakeven analysis to determine whether the firm should make or buy the item. 1. What is the breakeven quantity? 2. Should the manufacturer Make or Buy? 3. What is the cost savings using your decision in number 2 (above)? Show the total cost for each scenario then the savings amount.

Purchasing and Supply Chain Management

6th Edition

ISBN:9781285869681

Author:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Publisher:Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson

Chapter2: The Purchasing Process

Section: Chapter Questions

Problem 1GPE

See similar textbooks

Similar questions

Neverland Company, a retailer, plans to sell 15,000 units of Product X during the month of August. If the company has 2,500 units on hand at the start of the month, and plans to have 2,000 units on hand at the end of the month, how many units of Product X must be purchased from the supplier during the month? * 17,000 15,000 14,500 15,500
Suppose that a firm has the option to make or buy a part. Its annual requirement is 11,000 units. A supplier is able to supply the part at $6 per unit. The firm estimates that it costs $800 to prepare the contract with the supplier. To make the part, the firm must invest $29,000 in equipment, and the firm estimates that it costs $3 per unit to make the part. COSTS MAKE OPTION BUY OPTION Fixed Cost $29,000 $800 Variable Cost $3 $6 Annual Requirement = 11,000 units 1. What is the break-even point? Round your answer to the nearest whole number. 2. What is the total cost at the break-even point? Round your answer to the nearest dollar. 3. What is the total cost for the make option? Round your answer to the nearest dollar.
(b) MNM Century Sdn Bhd is a building contractor in Johor who just won the tender to construct 20 units of low-mid-cost house in Pontian, Johor. Both client and contractor agreed that the term for payment is based on the unit completed. For each unit completed, the contractor will be paid one-off payment worth RM 100,000. The contractor have to choose whether to use the traditional method or innovative IBS system in order to maximize their profit. The details for both construction methods are shown in Table 1. Table 1 Innovative IBS Description Traditional Method System Total construction duration 24 months 12 months Working days/week 6 days 5 days Cost Factors Fixed cost RM 200,000 RM250,000 Site staff salary (total, monthly) RM20,000 RM25,000 Labour cost (Average, daily) RM80 x 5 рах RM120 x 5 pax M&E labour cost (per unit) RM2,000 RM2,000 Material cost per unit RM 30,000 RM 20,000 (i) Demonstrate the best method between the two options from economic perspective? (ii) Based on your…
As manager of the St. Cloud Theatre Company, you have decided that concession sales will support themselves. The following table provides the information you have been able to put together thus far: Item Selling Price Variable Cost % of Revenue $2.00 $0.65 $0.95 $0.75 $0.30 Soft Drink 25 $2.75 $2.00 Wine 25 Coffee 30 Candy $1.00 20 Last year's manager, Scott Ellis, has advised you to be sure to add 10% of variable cost as a waste allowance for all categories. You estimate labor cost to be $250.00 (5 booths with 2 people each). Even if nothing is sold, your labor cost will be $250.00, so you decide to consider this a fixed cost. Booth rental, which is a contractual cost at $50.00 for each booth per night, is also a fixed cost. a) Based on the information available, the per night break-even point in dollars for the St. Cloud Theatre Company = $ 798.88 (round your response to two decimal places). %3D b) Based on the given information, the per night break-even point in servings for wine =…
You have just started to work in the purchasing office of a major pharmaceutical firm. The purchasing manager has asked you to assist in writing an RFP for a major purchase. The manager gives you a sheet detailing the specifications for the RFP. While reading the specifications, you realize that they have been written to be extremely favorable to one bidder. How should you handle this situation?
Improvised explosive devices (IEDS) are responsible for many deaths in times of strife and war. Unmanned ground vehicles (robots) can be used to disarm the IEDS and perform other tasks as well. If the robots cost $140,000 each and the military arms unit signs a contract to purchase 4,500 of them now and another 8,500 one year from now, what is the equivalent annual cost of the contract over a 9-year period at 12% per year interest? The equivalent cost of the contract is determined to be $
As manager of the St. Cloud Theatre Company, you have decided that concession sales will support themselves. The following table provides the information you have been able to put together thus far: Item Selling Price Variable Cost % of Revenue $0.65 $0.95 $0.75 $0.30 Soft Drink $2.00 25 $2.75 $2.00 $1.00 Wine 25 Coffee 30 Candy 20 Last year's manager, Scott Ellis, has advised you to be sure to add 10% of variable cost as a waste allowance for all categories. You estimate labor cost to be $250.00 (5 booths with 2 people each). Even if nothing is sold, your labor cost will be $250.00, so you decide to consider this a fixed cost. Booth rental, which is a contractual cost at $50.00 for each booth per night, is also a fixed cost. a) Based on the information available, the per night break-even point in dollars for the St. Cloud Theatre Company = $ (round your response to two decimal places).
Pranuec Company mai Tactures, assembles, and rebunds material handing equipment used Tn war ses and uistr iters. One product, called a Liftmaster, is assembled from four components: a frame, a motor, two supports, and a metal strap. Frandec's production schedule calls for 6000 Liftmasters to be made next month. Frandec purchases the motors from an outside supplier, but the frames, supports, and straps may be either manufactured by the company or purchased from an outside supplier. Manufacturing and purchase costs per unit are shown. Component Manufacturing Cost Purchase Cost Frame $39.00 $52.00 Support $12.50 $16.00 Strap $7.50 $8.50 Three departments are involved in the production of these components. The time (in minutes per unit) required to process each component in each department and the available capacity (in hours) for the three departments are as follows: Department Component Cutting Milling Shaping Frame 3.6 2.3 3.2 Support 1.4 1.8 2.7 Strap 0.9 1.8 Capacity (hours) 370 430…
Which of the following types of construction project is most likely to use a unit price contract? Group of answer choices Highway expansion project Commercial building Single-family residence Renovation of an apartment building Industrial plant
Inventory Management You are the store manager at a local branch of DigiLife, a large electronics retail chain. A new version of a popular consumer electronics device called the Amulet is coming out this year. It is your job to sell as many Amulets as you can while minimizing your costs in order to maximize your store's profits. Your Goal Earn $1,000,000 in net profits of Amulet sales.
Borges Machine Shop, Inc., has a 1-year contract for the production of 225,000 gear housings for a new off-road vehicle. Owner Luis Borges hopes the contract will be extended and the volume increased next year. Borges has developed costs for three alternatives. They are general-purpose equipment (GPE), flexible manufacturing system (FMS), and expensive, but efficient, dedicated machine (DM). The cost data follow: Annual contracted units Annual fixed cost Per unit variable cost General-Purpose Equipment (GPE) 225,000 $125,000 $18.00 The option GPE is best when the contracted volume is below Flexible Manufacturing System (FMS) Dedicated Machine (DM) 225,000 $500,000 $13.00 225,000 $200,000 $14.00 ☐ units (enter your response as a whole number).
As manager of the St. Cloud Theatre Company, you have decided that concession sales will support themselves. The following table provides the information you have been able to put together thus far: Item Soft Drink Wine Coffee Candy Selling Price $1.20 $2.00 $1.25 $1.20 Variable Cost $0.60 $0.95 $0.35 $0.25 % of Revenue 26 24 30 20 Last year's manager, Scott Ellis, has advised you to be sure to add 10% of variable cost as a waste allowance for all categories. You estimate labor cost to be $300.00 (5 booths with 2 people each). Even if nothing is sold, your labor cost will be $300.00, so you decide to consider this a fixed cost. Booth rental, which is a contractual cost at $50.00 for each booth per night, is also a fixed cost. a) Based on the information available, the per night break-even point in dollars for the St. Cloud Theatre Company = $633.640 (round your response to two decimal places).