The Tudor Door company is buying lock sets from the Schlege Lock Company for S3.
ID: 359551 • Letter: T
Question
The Tudor Door company is buying lock sets from the Schlege Lock Company for S3.00 each. Tudor spends $25,000 per year on contract negotiations with Tudor, ERF programming and other annual fixed costs demanded through buying these items from outside of their company. Tudor is planning to expand its business and is thinking about creating its own lock set manufacturing department. Tudor's engineers have mapped out the manufacturing space in the old warehouse portion of Tudor. There is no plant expansion or building costs. The only capital (fixed) costs they see is to buy the equipment and train their own employees. The capital expenditure (fixed cost) for machines and training is set at $185,000. Tudor engineers and product developers calculate that the gross variable cost for them to make it would be $1.75 each. If Tudor's annual demand for these lock sets is 100,000 units, should they make or buy? What is the lowest cost associated with this decision? (type the word Make (or Buy) then the best of the two annual total costs. UESTION 13 5 points Save Answer Using all of the same values in the preceding question, solve again if the annual demand is 200,000 units. What is the decision, make or buy? What is the cost associated with this decision?Explanation / Answer
For nnual demand of 100000 units,
Total cost of buy = annual fixed cost + unit variable cost*annual demand = 25000+3*100000 = 325000
Total cost of Make = 185000+1.75*100000 = 360000
Total cost of buy is lower. Therefore, Tudor should buy .
Lowest cost associated with this decision = $ 325000
If annual demand = 200000
Total annual cost of Buy = 25000+3*200000 =625000
Total annual cost of Make = 185000+1.75*200000 = 535000
Now total cost of Make is lower. Therefore is Make
Total cost = $ 535000
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