Make or Buy (Outsource) Decision Problem has come to your attention as a New Hir
ID: 470912 • Letter: M
Question
Make or Buy (Outsource) Decision Problem has come to your attention as a New Hire with a Cell Phone producing Firm. Following details are provided to you so that you can make appropriate recommendation.
DECISION
Fixed Cost in million
Per Unit Variable Cost
Make
$ 15.00
$ 50.00
Outsource
$ 1.50
$ 70.00
Annual Demand
400,000
Cell Phones
In a High Level meeting everybody agreed that the Firm will definitely save about $13.5 million (15-1.5) in Fixed Cost if they outsource Cell Phone Deal, but you have requested additional time to analyze and recommend appropriate action. Based on your analysis, your recommendations is:
Make or Outsource has the same Outcome
Everybody is Outsourcing so Outsource
Make - Don
DECISION
Fixed Cost in million
Per Unit Variable Cost
Make
$ 15.00
$ 50.00
Outsource
$ 1.50
$ 70.00
Annual Demand
400,000
Cell Phones
Explanation / Answer
Cost of Making Cell Phones = 400000 x 50 + 15 millions = 20+15 = 35 million
Cost of out sourcing Phones = 400000 x 70 + 1.5 million = 28+1.5 = 29.5 millions.
Hence, Net Saving on Outsourcing = 35 - 29.5 = $5.5millions
Hence, Option d is correct
Outsource
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