Suppose that a manufacturer has identified the following options for obtaining a machined part. It can buy the part at $200 per unit (including materials); it can make the part on a numerically controlled semiautomatic lathe at $75 per unit (including materials); or it can make the part on a machine center at $15 per unit (including materials). There is negligible fixed cost if the item is purchased; a semiautomatic lathe costs $80,000; and a machining center costs $200,000.

The housing is sold at $300 per unit.

1. If demand is a constraint (meaning the manufacturer cannot sell a large quantity of the item), which of the two alternatives would provide a better option if the objective is to maximize profits?

Buy (outsource)                        B.         Make

2. Write the complete equation representing the total cost for the Make option using the semiautomatic lathe. _____________

3. Write the complete equation representing the total cost for the Buy (outsource) option. _____________

4. What Q level will the outsource and make option using the semiautomatic lathe have the same total cost? ___________

5. If the manufacturer receives an order for 10,000 units of the housing, what is the total cost to outsource the aluminum housing? ___________

6. How much will be the manufacturer’s total variable cost if it makes10,000 units in-house using the semiautomatic lathe option? ____________

7. How much will be the manufacturer’s total cost if it makes10,000 units in-house using the semiautomatic lathe option? ___________

8. Based on the original selling price per unit of $300, how much is the TOTAL contribution margin for the Make option using the semiautomatic lathe if 10,000 units are produced and sold? ________

9. At Q=10,000 what is the total revenue for the Buy option? ________

10. At Q=10,000 what is the total profit for the Buy option? ________

11. At Q=10,000 what is the total profit for the Make option using the semiautomatic lathe? ________

12. If the housing is sold by the manufacturer at $200 per unit instead of the original price of $300, how much is the PER UNIT contribution margin for the Make option using the semiautomatic lathe? _____

13. If the housing is sold by the manufacturer at $200 per unit instead of the original price of $300, what is the breakeven quantity for the Make option using the semiautomatic lathe? _____