Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Marketing Management Expert

A MAKE OR BUY ANALYSIS

Figi Fabricating Company is reviewing economic feasibility of manufacturing a part that it presently purchases from a supplier.  Forecasted annual demand for the part is 3200 units.  Figi operates 250 days per year (50 weeks @ 5 days per week).

Figi's financial analysts have established the cost of capital of 14% on the use of funds for investments within the company.  Additionally, accounting information shows that the total of 4% of costs were spent on taxes and insurance related to the company's inventory.  It has been estimated that another 1.5% was lost due to inventory shrinkage, that included damaged goods as well as pilferage.  At last, 2.5% was spent on warehouse overhead, including utility expenses for heating and lighting.

Analysis of the purchasing operation demonstrates that approximately two hours are needed to process and coordinate an order for the part regardless of the quantity ordered.  Purchasing salaries average $28 per hour, including employee benefits.  Additionally, a detailed analysis of 125 orders showed that $2375 was spent on telephone, paper, and postage directly related to the ordering process.

Presently the company has the contract to purchase part from a supplier at a cost of $18 per unit.  Though, over the past few months, the company's production capacity has been expanded.  As a result, excess capacity is now available in certain production departments and the company is considering the alternative of producing the parts itself.

Forecasted utilization of equipment demonstrates that production capacity would be available for the part being considered.  The production capacity is available at the rate of 250 units per week.  It is felt that with the short lead-time, schedules could be arranged so that the part could be produced whenever required. Production costs are expected to be $17 per part.

A concern of management is that setup costs would be significant.  The total cost of labour and lost production time is estimated to be $50 per hour, and it will take a full 8-hour shift to set up the equipment for producing the part.

REQUIREMENTS:

Develop a one-page report for Figi Fabricating that will address the problem of whether the company should continue to purchase the part from the supplier or begin to produce the part itself.  Include the following factors in your report:

1. Analysis of holding cost, ordering cost (when ordering from supplier), and set-up cost (when producing the part).

2. Develop an inventory policy (how many to order and how frequently) for the following two alternatives (a) ordering a fixed quantity Q from the supplier or (b) ordering a fixed quantity Q from in-plant production.  Be sure to include the (1) Optimal quantity Q* and (2) the total annual cost for each option.

3. Make a recommendation as to whether the company should purchase or manufacture the part.  What is the savings associated with your recommendation as compared with the other alternative?  Besides the differences in cost, what other factors need to be considered? (MAKE SURE TO PROVIDE A THOROUGH DISCUSSION)

4. Sensitivity Analysis:  Would the decision change if production costs were increased by $0.50 per part (now the production cost would be $17.50)?  If so, how?

Marketing Management, Management Studies

  • Category:- Marketing Management
  • Reference No.:- M91459

Have any Question? 


Related Questions in Marketing Management

To conclude your marketing plan in assignment 3 you will

To conclude your marketing plan, in Assignment 3, you will describe the company's, marketing strategy, implementation strategy, expansion plan, social media strategy, monitoring methods, and integrated marketing communic ...

Watch the short video with the title in this generation not

Watch the short video with the title: "In this generation: Not knowing how to code is like not knowing how to type" with Greg Raifman (link: thearf.org/blog/category/arf-videos/). Then answer the following two questions: ...

Ethics assignmentafter viewing the remington under fire

Ethics Assignment: After Viewing the Remington Under Fire Video write a 2-page double spaced essay regarding the ethics of product responsibility and consumer safety. How do you feel Remington has handled the situation? ...

Liability and quality please respond to the followingas a

"Liability and Quality" Please respond to the following: As a healthcare administrator, you have been tasked with researching your hospital's compliance in the proper reporting of both medical and non-medical errors made ...

Assignment discussion-marketing plans and customer

Assignment : Discussion-Marketing Plans and Customer Satisfaction Corona beer is the number one imported beer into the United States, and has developed into a global brand (General Distributors, Inc., n.d.). Corona creat ...

You must respond with at least 250 words your replies must

You must respond with at least 250 words. Your replies must do the following: Answer the question posed at the end of the thread. Respond to the practical example in the thread by sharing a practical example that differs ...

Option 1 mobile devices and social networking in selling

Option #1: Mobile Devices and Social Networking in Selling Process In 2014, nearly half of the small businesses that reported an increase in social networks sales used social networking in multiple business development a ...

Please write 1 page 12 font single space paper that include

Please write 1 page 12 font single space paper that include these points. The subject is about clinical trail (the hospital is CHOP)  We learned that Facebook and Google are the most common social media tools parents usi ...

Proper spelling and grammar will be gradeddiscussion

proper spelling and grammar will be gradedDiscussion Questions 1. Think of examples in the media that poke fun at the communications skills of technical pro-fessionals, such as Dilbert® or xkcd.com cartoons. How does thi ...

What type of it infrastructure does your school have if it

What type of IT infrastructure does your school have? If it uses a client/server infrastructure how does your school's client/server network increase student productivity? What recommendations, based on the contents, cou ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro