Question

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 30,000 units. Vendor B has a price of $ 22 per unit for demand of 1,000 units or less, 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?
b. Determine the range for which each alternative is best. Are there any alternatives that are never best? Which?



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  • CreatedDecember 30, 2014
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