The Mechanical Components Division manager asks you to recommend a make/buy decision on a major automotive subassembly that is currently purchased externally for a total of $3.9 million this year. This cost is expected to continue rising at a rate of $300,000 per year. Your manager asks that both direct and indirect costs be included when in-house manufacturing (make alternative) is evaluated. New equipment will cost $2.800 million, have a salvage of $0.5 million and a life of 6 years. Estimates of materials, labor costs, and other direct costs are $2.100 million, per year. Typical indirect rates, bases, and expected usage are shown. Perform the AW evaluation at MARR = 12% per year over a 6-year study period. Rate Department Basis X Direct labor cost Y Materials cost $2.450 per dollar $0.50 per dollar Number of Z $20 per inspection inspections Expected Usage $450,000 $835,000 4,500 The annual worth for the make decision is $ The annual worth for the buy decision is $ The make alternative is selected.

The Mechanical Components Division manager asks you to recommend a make/buy decision on a major automotive subassembly that is currently purchased externally for a total of $3.9 million this year. This cost is expected to continue rising at a rate of $300,000 per year. Your manager asks that both direct and indirect costs be included when in-house manufacturing (make alternative) is evaluated. New equipment will cost $2.800 million, have a salvage of $0.5 million and a life of 6 years. Estimates of materials, labor costs, and other direct costs are $2.100 million, per year. Typical indirect rates, bases, and expected usage are shown. Perform the AW evaluation at MARR = 12% per year over a 6-year study period. Rate Department Basis X Direct labor cost Y Materials cost $2.450 per dollar $0.50 per dollar Number of Z $20 per inspection inspections Expected Usage $450,000 $835,000 4,500 The annual worth for the make decision is $ The annual worth for the buy decision is $ The make alternative is selected.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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