A firm plans to begin production of a new small appliance. The manager must decide whether to purchase the motors for the appliance from a vendor for $6.50 each or to produce them in house. There are two in house options.
Option 1 would have an annual fixed cost of $161000 and a variable cost of $5.80.
Option 2 would have an annual fixed cost of $193000 and a variable cost of $3.90.
Calculate the maximum quantity that would have the manager select purchasing the motors from the vendor.
Option 1: | ||
Saving in Variable Cost= Purchase price - Variable Cost | ||
Saving in Variable Cost Per Unit = $ 6.50 - $ 5.80 = | $ 0.70 | |
To Cover the Fixed Cost of $ 161,000 we have to order = | ||
Order Quantity = Fixed Cost / Saving Per unit = | ||
Order Quantity = $ 161,000 / $ 0.70 = | 2,30,000 | Units |
Answer = Maximum order Quantity = 230,000 Units | ||
Option 1: | ||
Saving in Variable Cost= Purchase price - Variable Cost | ||
Saving in Variable Cost Per Unit = $ 6.50 - $ 3.90 = | $ 2.60 | |
To Cover the Fixed Cost of $ 193,000 we have to order = | ||
Order Quantity = Fixed Cost / Saving Per unit = | ||
Order Quantity = $ 193,000 / $ 2.60 = | 74,231 | Units |
Answer = Maximum order Quantity = 74,231 Units | ||
A firm plans to begin production of a new small appliance. The manager must decide whether...
A firm plans to begin production of a new small appliance. The manager must decide whether to purchase the motors for the appliance from a vendor for $6.70 each or to produce them in house. There are two in house options. Option 1 would have an annual fixed cost of $161000 and a variable cost of $5.90. Option 2 would have an annual fixed cost of $194000 and a variable cost of $4.10. Calculate the maximum quantity that would have...
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