Question: Ah Chong Perlis Sdn Bhd would like to start a new project to assemble the lathe machine. There is one sub-assembly part required and the
Ah Chong Perlis Sdn Bhd would like to start a new project to assemble the lathe machine. There is one sub-assembly part required and the management need a decision whether to fabricate it in-house or to purchase it from vendor. In order to fabricate in-house, equipment with cost RM300,000 must be purchased. It will have a life span of FIVE (5) years, an annual operating cost RM100,000 and each unit will cost RM50 to be manufactured. The equipment could be sold back at a price of RM80,000 after FIVE (5) years. Whereas by buying the part externally, it will cost RM90 per unit. If the number per year required is 4,000 units, advice the management whether the company need to fabricate it in-house or purchase it from outside. Assume the interest rate is 15% per year. Show the plot on a graph to make the management easy to understand.
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