Please show all work for Question B. A global manufacturer of electrical switchi
ID: 368832 • Letter: P
Question
Please show all work for Question B.
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 $10 million. The variable cost of labor and materials are $10.00 per breaker. The company has an offer from a major subcontractor to produce the part for $18.00 per breaker a. How many breakers would the electrical switching equipment company need per year to make the in-house option the least costy? The company should consume more than 1250000 breakers per year to make the manufacturing the part in-house option the least costly. (Enter your response rounded to the nearest whole number) b. Assume the subcontractor wants the company to share in the costs of the equipment. The ESE company estimates that the total cost would be $5 million, which also includes management oversight for the new supply contract. For this concession, the subcontractor will drop the per unit price to $11.00. Under this assumption, how many breakers would the ESE company need per year to make the in-house option least costly? The company should consume Vbreakers per year to make the manufacturing the part in-house option the least costly. (Enter your response rounded to the nearest whole number)Explanation / Answer
a) Crossover point between inhouse manufacturing vs subcontracting = Fixed cost of inhouse mfg / (variable cost of subcontracting - variable cost of inhouse mfg) = 10,000,000 / (18-10) = 1,250,000 units
The company should consume more than 1,250,000 breakers per year to make the manufactuing the part in house option the least costly.
b) New Crossover point between inhouse manufacturing vs subcontracting = (Fixed cost of inhouse mfg - fixed cost shared by the company for subcontracting) / (variable cost of subcontracting - variable cost of inhouse mfg) = (10,000,000 - 5,000,000) / (11-10) = 5,000,000 units
The company should consume more than 5,000,000 breakers per year to make the manufactuing the part in house option the least costly.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.