Question

Your manufacturing team informs you that they have found a way to increase the size of the manufacturing run from 10,000 to 18,000 units in increments of 2,000 units. However, the setup cost will be $150,000 and the defects will cost the same $120 for removal and repair.

1. Calculate the economic feasibility of make or buy.

2. Should the probability of defects change if we produce 18,000 units as opposed to 10,000 units?

3. Would your answer to question 1 change if the company management believes that follow-on contracts will be forthcoming? What would happen if the probability of defects changes to 15 percent, 25 percent, 40 percent, 15 percent, and 5 percent due to learning-curve efficiencies?

Your answers must be justified with an explanation, moreover, analyze at least one of your classmates' answers and politely reply to them with your feedback and analysis.

Answer 1

statement of Dator 1 1 Page noe of Economni feasibility make or buy. Add Incrementa cost Defects (120x6000) "Toto in semental cost No. of Inc-unit Inc, cost / unit 50,000 120,000 820,000 2000 435 G : If the purchase price is below feasible to purchase the good is above 435 the it is 435 the it is or if purchase price feusible to manufacture option % of defect No. of defects cast per defect Total cost / Incrementa Totul of defect cost cost Totalost Porunit 120 120 3 25 (40 2700 4500 1200 doo 324000 540,000 864000 108000 use.000 15000 150,000 150,000 474000 237 1690000 340 2014000 507 270000 129 120 5. 120 B Assumption Purchase feasible options & Price : 455 A, B, & c