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

Each student will create a sales portfolio to accompany the

Each student will create a sales portfolio to accompany the role play which is done during class time. The portfolio must include one of each of the following: business card, product brochure, sample/mockup, and a one-pa ...

Strategic global marketingyour work on your strategic

STRATEGIC GLOBAL MARKETING Your work on your strategic global marketing plan is complete. You now have a plan that will implement, manage, and support a global strategy, but it is far from organized. You e-mail Deborah t ...

Select a product from your sustainable product proposal and

Select a product from your Sustainable Product Proposal and create a product launch. Present the product launch to the product management team. You must sell the idea and deliver this account for your firm. Prepare a 20- ...

Read costco wholesale corporation cost is fading away by

Read "Costco Wholesale Corporation (COST) Is Fading Away" by Dana Blakenhorn Watch the video "Are recent trends in retail the signal of a big-box bust? | Reality Check" Write a 700- to 1,050-word paper using Costco as yo ...

Assignment create a marketing proposalfor this assignment

Assignment: Create a Marketing Proposal For this assignment you will create a marketing proposal for the product (or industry) you selected for Discussion 2. As the marketing manager, you have been asked to create a mark ...

Identify and explain countertrade give one example of a

Identify and explain countertrade. Give one example of a product and marketer where countertrade has been used.

Discuss the 5 levels of a products life cycle please give

Discuss the 5 levels of a product's life cycle. Please give one example of a specific product that has followed this cycle.

Use of social media is very effective to any company for

Use of social media is very effective to any company. For example Apple can be use social  media to increase its brand recognition by posting its products on various platforms like face book and twitter. Posting online, ...

So this is the question find a current news article

So this is the question: Find a current news article (appearing in the last six months) that illustrates principles discussed in your class (lecture). You need to turn in the original article (or copy), or video of the m ...

Mini-case study quality management at global green books

Mini-Case Study: Quality Management at Global Green Books Publishing Global Green Books Publishing is growing its eBook business, satisfying demand for customized eBooks for the college market and for a growing number of ...

  • 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