Part-A Teloxy Engineering has received a onetime contract to design and build 10,000 units of a new product. During the proposal process, management felt that the new product could be designed and manufactured at a low cost. One of the ingredients necessary to build the product was a small component that could be purchased for $60 in the marketplace, including quantity discounts. Accordingly, management budgeted $650,000 for the purchasing and handling of 10,000 components plus scrap. During the design stag

Part-B

Your manufacturing team informs you that they have found a way to increase the size of the manufacturing run from 10,000 to 18,000 units, in increments of 2,000 units. However, the setup cost will be $150,000 and defects will cost the same $120 for removal and repair.

Question Set B

1. Calculate the economic feasibility of make or buy.

2. Should the probability of defects change if we produce 18,000 units as opposed to 10,000 units?

3. Would your answer to question 1 change if Teloxy management believes that follow-on contracts will be forthcoming? What would happen if the probability of defects changes to 15 percent, 25 percent, 40 percent, 15 percent, and 5 percent due to learning-curve efficiencies?