Exhibit 10-2 Aurora is a calculator manufacturer. One of aurora’s best-selling c

Question

Exhibit 10-2

Aurora is a calculator manufacturer. One of aurora’s best-selling calculator is DT920P, a dual power calculator with both solar and battery. The annual fixed costs for manufacturing the DT920P is $365,000, in addition, the total variable cost is $4.5 for each unit produced. Now the management in Aurora is considering outsourcing the production of some products for next year. They have a bid from an outside firm to produce the calculator for $6 per unit. Although it is more expensive per unit to outsource the calculator ($6 versus 4.5), the fixed cost can be avoided if Aurora purchases rather than manufactures the product.

Let us define the following:

            q = quantity (number of units) required

            FC = the fixed cost of manufacturing

            VC = the per-unit variable cost of manufacturing

            P = the per-unit variable cost of purchasing

Part of spreadsheet model is displayed following:

Question 19

Refer to Exhibit 10-2. The formula corresponding to the saving due to outsourcing placed in cell B12 would be ____, and if Aurora decide to outsourcing 10,000 units instead of manufacturing 10,000 units, what will be the value in B12 ?

=B10-B11; $350,000.00

=B10-B11; $45,000.00

=B10-B11; $206,004.50

=B10-B11; $305,000.00

Question 20

Refer to Exhibit 10-2. The break-even point (the quantity for which saving due to outsourcing is 0) can be found using Excel’s  

COUNTIF function

Goal Seek tool

Data Table tool

SUMPRODUCT function

Question 21

Refer to Exhibit 10-2. The break-even point is about

$243,333

$124,333

$251,667

$169,667

A.

=B10-B11; $350,000.00

B.

=B10-B11; $45,000.00

C.

=B10-B11; $206,004.50

D.

=B10-B11; $305,000.00

1 Aurora 3 Parameters 4 FC (Fixed cost of manufacturing) 365000 4.5 5 VC (Per unit variable cost of manufacturing) 6 P (Per-unit variable cost of purchasing) 6 8 Model 9 q (Quantity) 10000 10 TMC (Total cost to produce) 11 TPC (Total cost to outsource) 12 Savings due to Outsourcing 14

Explanation / Answer

19) Option A:
=B10 - B11; 350000

Total cost to produce 10000 units = Fixed cost + variable cost*quantity = 365000 + 4.5*10000 = 410000
Total cost to outsource = per-unit price*quantity = 6*10000 = 60000

Savings = 410000 - 60000 = 350000

20) Option B: Goal seek

21) Option A: 243333

Click Data on the toolbar, select the What-If Analysis button and then select Goal Seek on the dropdown menu. When the Goal Seek box shows up, enter "$B$12" in the Set Cell box, enter 0 into the To Value box and enter "$B$9" into the By Changing Cell box. Click Ok.

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