QUESTION 1

Gabriela Manufacturing must decide whether to insource or outsource a new toxic-free miracle carpet cleaner that works with its Miracle Carpet Cleaning Machine. If it decides to insource the product, the process would incur $300,000 of annual fixed costs and $1.50 per unit of variable costs. If it is outsourced, a supplier has offered to make it for an annual fixed cost of $120,000 and a variable cost of $2.25 per unit in variable costs.

Given these two alternatives, determine the indifference point (where total costs are equal).

QUESTION 2

Gabriela Manufacturing must decide whether to insource or outsource a new toxic-free miracle carpet cleaner that works with its Miracle Carpet Cleaning Machine. If it decides to insource the product, the process would incur $300,000 of annual fixed costs and $1.50 per unit of variable costs. If it is outsourced, a supplier has offered to make it for an annual fixed cost of $120,000 and a variable cost of $2.25 per unit in variable costs.

If the expected demand for the new miracle cleaner is 300,000 units, what would you recommend that Gabriela Manufacturing do?

		Since demand is expected to be over the indifference point, insourcing is cheaper.
		Since demand is expected to be over the indifference point, outsourcing is cheaper.
		Gabriela Manufacturing can choose either option because the annual fixed costs are equal.
		There is not enough information to answer this question. QUESTION 3 Downhill Boards (DB), a producer of snow boards, is evaluating a new process for applying the finish to its snow boards. Durable Finish Company (DFC) has offered to apply the finish for $170,000 in fixed costs and a unit variable cost of $0.65. Downhill Boards currently incurs a fixed annual cost of $125,000 and has a variable cost of $0.90 per unit. Annual demand for the snow boards is 160,000. Calculate the annual cost of the current process used at Downhill Boards.

QUESTION 4

Downhill Boards (DB), a producer of snow boards, is evaluating a new process for applying the finish to its snow boards. Durable Finish Company (DFC) has offered to apply the finish for $170,000 in fixed costs and a unit variable cost of $0.65. Downhill Boards currently incurs a fixed annual cost of $125,000 and has a variable cost of $0.90 per unit. Annual demand for the snow boards is 160,000.

Calculate the annual cost if Durable Finish Company applies the finish.

QUESTION 5

Downhill Boards (DB), a producer of snow boards, is evaluating a new process for applying the finish to its snow boards. Durable Finish Company (DFC) has offered to apply the finish for $170,000 in fixed costs and a unit variable cost of $0.65. Downhill Boards currently incurs a fixed annual cost of $125,000 and has a variable cost of $0.90 per unit. Annual demand for the snow boards is 160,000.

Find the indifference point for these two alternatives.

QUESTION 6

Henri of Henris French Cuisine (HFC), a chain of 12 restaurants, is trying to decide if it makes sense to outsource the purchasing function. Currently, Henri employs two buyers at an annual fixed cost of $85,000. Henri estimates that the variable cost of each purchase order placed is $15. Value-Buy (VB), a group of purchasing specialists, will perform the purchasing function for a fixed annual fee of $100,000 plus $5 for each purchase order placed. Last year, HFC placed 1450 purchase order.

What was the cost last year to HFC when doing the purchasing in-house?

QUESTION 7

Henri of Henris French Cuisine (HFC), a chain of 12 restaurants, is trying to decide if it makes sense to outsource the purchasing function. Currently, Henri employs two buyers at an annual fixed cost of $85,000. Henri estimates that the variable cost of each purchase order placed is $15. Value-Buy (VB), a group of purchasing specialists, will perform the purchasing function for a fixed annual fee of $100,000 plus $5 for each purchase order placed. Last year, HFC placed 1450 purchase order.

What would the cost have been last year had HFC used Value-Buy?

QUESTION 8

Henri of Henris French Cuisine (HFC), a chain of 12 restaurants, is trying to decide if it makes sense to outsource the purchasing function. Currently, Henri employs two buyers at an annual fixed cost of $85,000. Henri estimates that the variable cost of each purchase order placed is $15. Value-Buy (VB), a group of purchasing specialists, will perform the purchasing function for a fixed annual fee of $100,000 plus $5 for each purchase order placed. Last year, HFC placed 1450 purchase order.

What is the indifference point for the two alternatives?

QUESTION 9

Cals Carpentry is considering outsourcing its accounts receivable function. Currently, Cal employs two full-time clerks and one part-time clerk to manage accounts receivable. Each fulltime clerk has an annual salary of $36,000 plus fringe benefits costing 30 percent of their salary. The part-time clerk makes $18,000 per year but has no fringe benefits. Total salary plus fringe cost is $111,600. Cal estimates that each account receivable incurs a $10 variable cost. The Small Business Accounts Receivables Group (SBARG) specializes in handling accounts receivable for small- to medium-size companies. Doris Roberts from SBARG has offered to do the accounts receivable for Cals Carpentry at a fixed cost of $75,000 per year plus $30 per account receivable. Next year, Cal expects to have 2000 accounts receivable.

Calculate the cost for Cals Carpentry to continue doing accounts receivable in-house.

QUESTION 10

Cals Carpentry is considering outsourcing its accounts receivable function. Currently, Cal employs two full-time clerks and one part-time clerk to manage accounts receivable. Each fulltime clerk has an annual salary of $36,000 plus fringe benefits costing 30 percent of their salary. The part-time clerk makes $18,000 per year but has no fringe benefits. Total salary plus fringe cost is $111,600. Cal estimates that each account receivable incurs a $10 variable cost. The Small Business Accounts Receivables Group (SBARG) specializes in handling accounts receivable for small- to medium-size companies. Doris Roberts from SBARG has offered to do the accounts receivable for Cals Carpentry at a fixed cost of $75,000 per year plus $30 per account receivable. Next year, Cal expects to have 2000 accounts receivable.

Calculate the cost for Cals Carpentry to use SBARG to handle the accounts receivable.

QUESTION 11

Cals Carpentry is considering outsourcing its accounts receivable function. Currently, Cal employs two full-time clerks and one part-time clerk to manage accounts receivable. Each fulltime clerk has an annual salary of $36,000 plus fringe benefits costing 30 percent of their salary. The part-time clerk makes $18,000 per year but has no fringe benefits. Total salary plus fringe cost is $111,600. Cal estimates that each account receivable incurs a $10 variable cost. The Small Business Accounts Receivables Group (SBARG) specializes in handling accounts receivable for small- to medium-size companies. Doris Roberts from SBARG has offered to do the accounts receivable for Cals Carpentry at a fixed cost of $75,000 per year plus $30 per account receivable. Next year, Cal expects to have 2000 accounts receivable.

If the fixed annual cost offered by SBARG is nonnegotiable but it is willing to negotiate the variable cost, what variable cost from SBARG would make Cal indifferent to the two options?