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.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter8: Cost Analysis
Section: Chapter Questions
Problem 5E
Related questions
Question
None
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning