Question

Suppose that a manufacturer needs to produce a custom aluminum housing for a special customer order. Because it currently does not have the equipment necessary to make the housing, it would have to acquire machines and tooling at a fixed cost (net of salvage value after the project is completed) $170,000. The variable cost of production is estimated to be $30 per unit. The company can outsource the housing to a metal fabricator at a cost of $43 per unit. The customer order is for 14,000 units. What should it do? The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Answer 1

Answer:

It is more convenient to produce in house.

Explanation:

Giving the following information:

It would have to acquire machines and tooling at a fixed cost (net of salvage value after the project is completed) $170,000. The variable cost of production is estimated to be $30 per unit. The company can outsource the housing to a metal fabricator for $43 per unit. The customer order is for 14,000 units.

Make in house:

Total cost= 30*14,000 + 170,000= $590,000

Buy= 43*14,000= $602,000

It is more convenient to produce in house.