Prevar Corporation currently purchases components from one of its suppliers. The current purchase price is $1500 per component, with annual purchase volume of 750 units. The ops manager believes that this component could be made inhouse with some minor modifications to the current factory set up. Fixed cost for dedicating a line for this component is estimated at $50,000. Raw materials for the component is estimated at $900, overhead at $200 and it would take 10 hours of labor (at $20 per hour) to produce each component. a) Should Prevnar continue purchasing the component or consider making inhouse instead. b) Management is concerned about dedicating a line for the production. What is the BREAKEVEN quantity for this decision? c) Besides financial analysis, are there any other factors to consider before switching over to inhouse production? Provide at least THREE possible considerations.
Prevar Corporation currently purchases components from one of its suppliers. The current purchase price is $1500 per component, with annual purchase volume of 750 units. The ops manager believes that this component could be made inhouse with some minor modifications to the current factory set up. Fixed cost for dedicating a line for this component is estimated at $50,000. Raw materials for the component is estimated at $900, overhead at $200 and it would take 10 hours of labor (at $20 per hour) to produce each component. a) Should Prevnar continue purchasing the component or consider making inhouse instead. b) Management is concerned about dedicating a line for the production. What is the BREAKEVEN quantity for this decision? c) Besides financial analysis, are there any other factors to consider before switching over to inhouse production? Provide at least THREE possible considerations.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Prevar Corporation currently purchases components from one of its suppliers. The current purchase price is $1500 per component, with annual purchase volume of 750 units.
The ops manager believes that this component could be made inhouse with some minor modifications to the current factory set up. Fixed cost for dedicating a line for this component is estimated at $50,000. Raw materials for the component is estimated at $900, overhead at $200 and it would take 10 hours of labor (at $20 per hour) to produce each component.
Transcribed Image Text:Prevar Corporation currently purchases components from one of its suppliers. The current
purchase price is $1500 per component, with annual purchase volume of 750 units.
The ops manager believes that this component could be made inhouse with some minor
modifications to the current factory set up. Fixed cost for dedicating a line for this component is
estimated at $50,000. Raw materials for the component is estimated at $900, overhead at $200
and it would take 10 hours of labor (at $20 per hour) to produce each component.
a) Should Prevnar continue purchasing the component or consider making inhouse instead.
b) Management is concerned about dedicating a line for the production. What is the
BREAKEVEN quantity for this decision?
c) Besides financial analysis, are there any other factors to consider before switching over to
inhouse production? Provide at least THREE possible considerations.
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