Question

A global manufacturer of electrical switching equipment (ESE) is considering outsourcing the manufacturing of an electrical breaker used in the manufacturing of switch boards. The company estimates that the annual fixed cost of manufacturing the part in-house, which includes equipment, maintenance, and management, amounts to $9 million. The variable cost of labor and materials are $12.00 per breaker. The company has an offer from a major subcontractor to produce the part for $18.00 per breaker.

If the ESE manufacturer is expecting to use 1,400,000 breakers per year, which option (make in-house, use subcontractor without sharing in the cost of equipment, use subcontractor with sharing in the cost of equipment) is the least costly?

Group of answer choices

manufacturing in-house

using the subcontractor without sharing the cost of equipment

using the subcontractor with sharing the cost of the equipment

Answer 1

Manufacturing In-house Total Cost = Freted Cast & Variable lento > 1000000 + ($123 149,00000) 90,00ooot 16800000 $ 25800000 Using the Subcontractor without Sharing the last Company's offer - $18 - - So o Te (4 18+ 1400000) 25200ooo Ving the Subcontractor with Sharing the lost - % equipment So Egipment, Maintenance and Management & Quillion So Lots dag equipment = 3 million - 3000.000 + ($18 + 1400000) - $ 23200.000 Hence Clearly 2nd option is the learst Clasthan Costly.