A. Calculate the difference in novs between the make and buy optiom. Express all cost as positive values in your calculations.B should you continue to produce in house or accept the bid for taiwanese supplier? One of your Taiwanese suppliers has bid on a new line of molded plastic parts that is currently being assembled at your plant. Thesupplier has bid $0.10 per part, given a forecast you provided of 200,000 parts in year 1; 300,000 in year 2; and 500,000 in year 3.Shipping and handling of parts from the supplier's factory is estimated at $0.03 per unit. Additional inventory handling charges shouldamount to $0.005 per unit. Finally, administrative costs are estimated at $20 per month.Although your plant is able to continue producing the part, the plant would need to invest in another molding machine, which wouldcost $20,000. Direct materials can be purchased for $0.04 per unit. Direct labor is estimated at $0.05 per unit for wages plus a 50percent surcharge for benefits and, indirect labor is estimated at $0.011 per unit plus 50 percent benefits. Up-front engineering anddesign costs will amount to $30,000. Finally, management has insisted that overhead be allocated if the parts are made in-house at arate of 100 percent of direct labor wage costs. The firm uses a cost of capital of 15 percent per year.

Demand Data: Year 1100,000Year 2200,000Year 3300,000Taiwanese supplier Bid's Data :Cost per unit =…

A. Calculate the difference in novs between the make and buy optiom. Express all cost as positive values in your calculations. B should you continue to produce in house or accept the bid for taiwanese supplier?

A. Calculate the difference in novs between the make and buy optiom. Express all cost as positive values in your calculations. B should you continue to produce in house or accept the bid for taiwanese supplier?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

One of your Taiwanese suppliers has bid on a new line of molded plastic parts that is currently being assembled at your plant. The
supplier has bid $0.10 per part, given a forecast you provided of 200,000 parts in year 1; 300,000 in year 2; and 500,000 in year 3.
Shipping and handling of parts from the supplier's factory is estimated at $0.03 per unit. Additional inventory handling charges should
amount to $0.005 per unit. Finally, administrative costs are estimated at $20 per month.
Although your plant is able to continue producing the part, the plant would need to invest in another molding machine, which would
cost $20,000. Direct materials can be purchased for $0.04 per unit. Direct labor is estimated at $0.05 per unit for wages plus a 50
percent surcharge for benefits and, indirect labor is estimated at $0.011 per unit plus 50 percent benefits. Up-front engineering and
design costs will amount to $30,000. Finally, management has insisted that overhead be allocated if the parts are made in-house at a
rate of 100 percent of direct labor wage costs. The firm uses a cost of capital of 15 percent per year.

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