Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Operation Management Expert

A MAKE OR BUY ANALYSIS:

Figi Fabricating Company is reviewing the economic feasibility of manufacturing a part which 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 a cost of capital of 14% on the use of funds for investments in the company. Additionally, accounting information exhibits that a total of 4% of costs were spent on taxes and insurance associated to the company's inventory. This has been estimated that the other 1.5% was lost due to inventory shrinkage that included damaged goods and also pilferage. Lastly, 2.5% was spent on warehouse overhead, comprising utility expenses for heating and lighting.

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

Presently the company has a contract to purchase the 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, surplus capacity is now available in certain production departments and the company is considering the alternative of producing the parts itself.

Forecasted utilization of equipment shows that the production capacity will be accessible for the part being considered. The production capacity is available at the rate of 250 units per week.  This is felt that with a short lead-time, schedules can be arranged and hence the part can be produced whenever required. Production costs are expected to be $17 per part.

The concern of management is that setup costs will be important. The total cost of labor 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:

Make a one-page report for Figi Fabricating that will address the problem of whether the company must continue to purchase the part from the supplier or start to produce the part itself.  Include the given factors in your report:

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

problem 2: Make an inventory policy (how many to order and how often) for the given two alternatives (i) ordering a fixed quantity Q from the supplier or (ii) ordering a fixed quantity Q from in-plant production.  Be sure to comprise the (a) Optimal quantity Q* and (b) the total annual cost for each option.

problem 3: Make a recommendation as to whether the company must 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 require to be considered?

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

Please show all computations. You should use the Equation preparer in Microsoft Word on the Insert Ribbon, Symbols group.

Operation Management, Management Studies

  • Category:- Operation Management
  • Reference No.:- M9546

Have any Question? 


Related Questions in Operation Management

Please give a practical example each of contract of

Please give a practical example each of Contract of Indemnity and Contract of Guarantee. Also identify and highlight as to how these contracts, as quoted by you as examples, are different from each other. Need min of 100 ...

If your organization is a call centre that hires 45

If your organization is a call centre that hires 45 employees each month, describe how you would use application blanks, interviews, computerized sales aptitude tests and performance tests.

Please choose 1 of the 4 topics listed below 1 just

Please Choose 1 of the 4 Topics Listed Below: 1. Just War/Military Ethics (Weeks Three and Four) • The circumstances under which it is or is not legitimate to use military force against another group or country • The con ...

The written research report will utilize apa format and

The written research report will utilize APA format and should be 15 pages in length. Of course this page count is net of title, table of contents, or references. Providing solution for Volkswagen company scandal emissio ...

In what ways does a commitment benefit an organizationhow

In what ways does a commitment benefit an organization? How can knowledge of individual differences improve productivity and employee morale? Provide examples.

For this assignment prepare a powerpoint presentation on

For this assignment, prepare a PowerPoint presentation on employee training and employee development. Your audience is comprised of non-HR managers, who need to know how this topic applies to their role in the employee a ...

Business process diagram with horizontal swim lanes for a

Business Process Diagram with horizontal swim lanes for a gym membership. Swim lanes with Manager/Clerk/Existing member/new member. Manager offering discounts and early upgrades to current members to maintain membership ...

1 the static budget is based on an estimated level of sales

1. The static budget is based on an estimated level of sales volume that was determined at the beginning of an accounting period. the end of an accounting period. at any point during the accounting period. in the year a ...

1 how many feasible solutions are there in a linear program

1. How many feasible solutions are there in a linear program? Which ones do we need to examine to find the optimal solution? (DQ#8 p.705) 2. In the two videos this week regarding single and multi server queues, what are ...

Under what circumstances do you think bpm should be

Under what circumstances do you think BPM should be implemented as a department-wide initiative? Explain why. How do you know when BPM should be implemented? Also, post under what circumstances you think BPM should be im ...

  • 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