Susan Gilbert, a purchasing agent for Wisconsin Plastic Inc (WSI) is reviewing q

ID: 402569 • Letter: S

Question

Susan Gilbert, a purchasing agent for Wisconsin Plastic Inc (WSI) is

reviewing quotations from suppliers for a new plastic gear. Susan plans to either

place an order for 12000 gears from a supplier with the least cost quotation or

recommend that WSI purchase the necessary equipment and make the gear itself.

Relevant data for this make-or-buy decision are found below:

Make Buy

Fixed Cost of Equipment $60000 0

Variable cost per part $16 $20

What should Susan recommend? Make or Buy? Why? Choose one. (5 points)

What should Susan recommend if the order size is increased by 25%? Make or

Buy? Why?

for making the gear

total cost = fixed cost of equipment + variable cost

=>total cost = 60000 + 16*12000

=>total cost = 252000

if buying

Total cost = 0 + 20*12000

=>total cost = 240000

total cost by buying is less than making
so,it is better to buy at order of 12000

if order is increased by 25%

total orde = 1.25*12000 = 15000

making

total cost = 60000 + 15000*16

=>total cost = 300000

by buying

total cost = 15000*20 = 300000

both are recomended when order size is 15000

because total cost is same for both cases

make buy fixed cost of equipmet 60000 0 variable cost 16 20

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