Question

Possible points: 4 Due Date: 02/06/2020 Suppose that a manufacturer can produce a part for $10.00 with a fixed cost of $5,000. Alternately, the manufacturer could contract with a supplier in Asia to purchase the part at a cost of $12.00, which includes transportation a. If the anticipated production volume is 1.200 units, compute the total cost of manufacturing and the total cost of outsourcing b. What is the best decision? Can analytics help improve the effectiveness or efficiency of decision? Yes or No justify your answer with possible implications Model: Total CostFixed Cost (Variable CostQuantity

Answer 1

Ans. a)                 Evaluation of the proposal for 1200units (Amount in $)

                                        Manufacturing            Outsourcing

Variable cost(1200X10), (1200X12)    12000    14400

Fixed cost                                                     5000                        5000*

Total    cost                                          17000                       19400

*We are assuming fixed cost will be the same in both the situation

d) Decision : Total cost of own manufacturing is less than outsourcing cost it is better to manfacture the product Instead of outsourcing .

c) In above situation Fixed cost is remain same both the situation so that total cost of of manufacturing is less than total cost of outsourcing.

if after the outsourcing company is able to remove the fixed cost than it is better to outsourcing instead of manufacturing the product.