. The manager of Green Daisy Inc. is in the process of deciding whether to make
ID: 2715133 • Letter: #
Question
. The manager of Green Daisy Inc. is in the process of deciding whether to make or buy carburetors for its power lawn mowers. If Green Daisy decides to manufacture the carburetor, it could utilize one of two manufacturing processes. The first process would entail a variable cost of $17 per unit and an annual fixed cost of $200,000, while the second process would entail variable cost of $14 per unit and an annual fixed cost of $240,000. The manager knows of three vendors who are capable and willing to provide the carburetor. Vendor A charges $20 per unit for any volume up to 30,000 units and cannot supply Green Daisy’s need for volume above 30,000 units due to its capacity restrictions. Vendor B offers a price of $22 per unit for a demand of 1,000 units or less and $18 per unit for each unit above the 1,000 units. Vendor C’s price is $21 per unit for the first 1,000 units and $19 per unit for any additional units. The manager is unsure about what the demand is going to be for power lawnmowers. d) Determine the range for which each alternative is best.
Explanation / Answer
ANS a) If the demand is forecasted to be 10,000, 20,000, 28,000, or 60,000 units, which alternative would be best from a cost standpoint?
ANSd) Determine the range for which each alternative is best.
As per above working at 60000 units each alternative is best.
MANUFACTURING UNITS 10000 20000 28000 60000 PROCESS 1 VC @$17 PER UNIT 170000 340000 476000 1020000 ANNUAL FIXED COST 200000 200000 200000 200000 A 370000 540000 676000 1220000 AVERAGE COST PER UNIT 37 27 24.14285714 20.33333 PROCESS 2 VC @$14 PER UNIT 140000 280000 392000 840000 ANNUAL FIXED COST 240000 240000 240000 240000 B 380000 520000 632000 1080000 AVERAGE COST PER UNIT 38 26 22.57142857 18 SELECTION OF PROCESS PROCESS 1 PROCESS 2 PROCESS 2 PROCESS 2Related Questions
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