You are the operations manager of Ricardo Inc, manufacturer of gas grills in Central Ohio. One of the parts of goes into the grill assembly is the heavy cast iron grill plate. Each grill unit requires a grill plate and the annual production requirement is 30,000 units. Castco, a cast iron foundry submitted an offer to supply these parts for $30 per grill plate. You estimate that it costs $1,000 to prepare a contract with the supplier. To produce the steel grill plates in house, your company has to invest $350,000 in capital equipment mainly for a new foundry and it is estimated that it will cost $15 per plate (labor and material) to produce in-house.

a) Assuming the cost is the only criterion in your decision making, use break-even analysis to determine whether your firm should make the plates of buy them from Castco. What is the break even quantity and what is the total cost at the breakeven point?

b) At the last minute you receive another offer from Iron Castings Inc. and their offer was to supply these plates at $25 per piece with the fixed cost of $1,200. What is the break even quantity and what is the total cost at the breakeven point for this offer?

Answer rating: 100% (QA)

Make or Buy Analysis for Ricardo Inc a Castco Proposal Costs Fixed cost 1000 contract preparation Va... View the full answer