Galloway Corp. currently buys a part it needs from Moore LLC for $18.67 per unit. As Galloway
Question:
Galloway Corp. currently buys a part it needs from Moore LLC for $18.67 per unit.
As Galloway has grown it has considered adding a production line in its own factory to produce the part instead. The production line would cost $359079 per year in fixed costs. Running the line would consume $3.49 for materials and $2.9 for labor to make each unit.Terminating its contract with Moore will require Galloway to pay $100,000 in annual compensation.
For the coming year, Galloway expects to need 39090 of the parts.
What is the differential profit of insourcing production of the part?
Nader Co. is currently producing a product that is selling poorly so it is considering whether to drop that product.
The product has the following information:
Sales 42165 units for an average price of $18.26
Variable costs $9.64 per unit
Fixed manufacturing costs $513702
Fixed marketing costs $164343
Dropping the product would allow Nader to avoid all marketing costs. 75% of fixed manufacturing costs on the other hand are unavoidable.
Dropping the product would allow Nader to repurpose part of its factory to a different product which has high demand. Doing so would increase profits on that second product by $81803.
What is the differential profit of dropping the product? (You can round to the dollar and the answer could be positive or negative.)
Kaminsky Ltd. operates a limestone quarry. It currently produces 89988 tons of low grade limestone rocks annually, which are sold at an average price of £28.78 per ton. Kaminsky is considering the purchase of a pulverizer that can be used to crush these rocks into a powder that sells for £39.74 per ton. The pulverizer would cost £330398 in annual depreciation and maintenance. To operate it would require hiring 3 employees at a cost of £69607 per year for each and a supervisor at a cost of £128154 per year.
Crushing 1000 tons of limestone consumes £825 of electricity. Insurance, permits, taxes, and paperwork would cost an additional £247883 per year. Kaminsky has space on its quarry site that is currently unused that could be employed as the site of the pulverizing operation. The space constitutes 3% of the quarry's area. The quarry itself is leased at an annual cost of £3 million. Kaminsky spends £2629834 to excavate the 89988 tons of rock, and all 89988 tons would be crushed into powder if the company buys the pulverizer.
If the pulverizer is not built, Kaminsky has alternative plans for the unused space that would produce £40,000 in annual profit.
What is Kaminsky's annual differential profit from buying the pulverizer?
Introduction to Operations Research
ISBN: 978-1259162985
10th edition
Authors: Frederick S. Hillier, Gerald J. Lieberman