EBK OM
6th Edition
ISBN: 9781305888210
Author: Collier
Publisher: YUZU
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Chapter 6, Problem 2PA
Summary Introduction
Interpretation: Decisions need to be made whether the company should go for outsourcing or in-house production.
Concept Introduction: The total cost of production or outsourcing and breakeven point are useful quantifiable measures which help the company in making operational decisions which affect the company profits.
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Thompson manufacturing produces industrial scales for the electronics industry. Management is considering outsourcing the shipping operation to a logistics provider experienced in the electronics industry. Thompson’s annual fixed costs of the shipping operation are $1,500,000, which includes costs of the equipment and infrastructure for the operation. The estimated variable cost of shipping the scales with the in-house operation is $4.50 per ton-mile. If Thompson outsourced the operation to Carter Trucking, the annual fixed costs of the infrastructure and management time needed to manage the contract would be $250,000. Carter would charge $8.50 per ton-mile. How many ton-miles per year would Thompson need to break even on these two options?
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A large global automobile manufacturer is considering outsourcing the manufacturing of a solenoid used in the transmission of its SUVs. The company estimates that annual fixed costs of
manufacturing the part in-house, which include equipment, maintenance, and management, amounts to $6.7 million. The variable costs of labor and material are $7.75 per unit. The company has an
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that the total cost would be $2.7 million, which also includes management oversight for the new supply contact.
a. How many solenoids would the automobile company need per year to make the in-house option least costly?
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solenoids to make the manufacturing the part in-house option least costly. (Enter your response rounded to the nearest whole number.)
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