A global manufacturer of electrical switching equipment(ESE) is considering outsourcing the manufacturing ofan electrical breaker used in the manufacturing of switchboards. The company estimates that the annual fixed cost ofmanufacturing the part in-house, which includes equipment,maintenance, and management, amounts to $8 million. Thevariable cost of labor and materials are $11.00 per breaker.The company has an offer from a major subcontractor to pro-duce the part for $16.00 per breaker.a. How many breakers would the electrical switching equip-ment company need per year to make the in-house optionthe least costly?b. Assume the subcontractor wants the company to share inthe costs of the equipment. The ESE company estimatesthat the total annual cost would be $5 million, whichalso includes management oversight for the new supplycontract. For this concession, the subcontractor will dropthe per-unit price to $12.00. Under this assumption, howmany breakers would the ESE company need per year tomake the in-house option least costly?c. If the ESE manufacturer is expecting to use 1,500,000 break-ers per year, which option (make in-house, use subcontractorwithout sharing in the cost of equipment, use subcontractorwith sharing in the cost of equipment) is the least costly?
A global manufacturer of electrical switching equipment
(ESE) is considering outsourcing the manufacturing of
an electrical breaker used in the manufacturing of switch
boards. The company estimates that the annual fixed cost of
manufacturing the part in-house, which includes equipment,
maintenance, and management, amounts to $8 million. The
variable cost of labor and materials are $11.00 per breaker.
The company has an offer from a major subcontractor to pro-
duce the part for $16.00 per breaker.
a. How many breakers would the electrical switching equip-
ment company need per year to make the in-house option
the least costly?
b. Assume the subcontractor wants the company to share in
the costs of the equipment. The ESE company estimates
that the total annual cost would be $5 million, which
also includes management oversight for the new supply
contract. For this concession, the subcontractor will drop
the per-unit price to $12.00. Under this assumption, how
many breakers would the ESE company need per year to
make the in-house option least costly?
c. If the ESE manufacturer is expecting to use 1,500,000 break-
ers per year, which option (make in-house, use subcontractor
without sharing in the cost of equipment, use subcontractor
with sharing in the cost of equipment) is the least costly?
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