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Title: Evaluating Alternatives Problem Post by: csutherland1 on Jun 12, 2015 A manager is trying to decide whether to purchase a certain part or to have it produced internally. Internal production could use either of two processes. One would entail a variable cost of $17 per unit and an annual fixed cost of $200,000; the other would entail a variable cost of $14 per unit and an annual fixed cost of $240,000. Three vendors are willing to provide the part. Vendor A has a price of $20 per unit for any volume up to its maximum capacity of 30,000 units. Vendor B has a price of $22 per unit for demand less than 1,000 units, and $18 per unit for larger quantities. Vendor C offers a price of $21 per unit for the first 1,000 units, and $19 per unit for additional units.
a.If the manager anticipates an annual volume of 10,000 units, which alternative would be best from a cost standpoint? For 20,000 units, which alternative would be best? (Omit the "$" sign in your response.) TC for 10,000 units Int. 1: $ __________ Int. 2: $ __________ Vend A: $ __________ Vend B: $ ___________ Vend C: $ ___________ TC for 20,000 units Int. 1: $ __________ Int. 2: $ __________ Vend A: $ __________ Vend B: $ ___________ Vend C: $ Title: Re: Evaluating Alternatives Problem Post by: dtimmons95 on Jun 13, 2015 Find out out your cost for both options and decide
1. let your requirement is 30000 units. Variable cost 30000 x 17 = 510,000 Add fixed cost 510,000 + 200,000 = 710,000 Unit cost 710000/30000 = $23.66 2 Variable cost 30000x14 = 420,000 Add fixed cost 420,000 + 240,000 = 660,000 unit cost 660,000/30000 = $22 It is better to give to outsiders depending on the requirement A or B or C is to be selected. |