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 $3 million, have a salvage of $0.5 million and a life of 6 years. Estimates of materials, labor costs, and other direct costs are $1.5 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. Show both hand and spreadsheet solutions. Department Basis Rate Expected Usage X Direct labor cost $2.40 per $ $450,000 Y Materials cost $0.50 per $ $850,000 Z Number of inspections $20 per inspection $4,500
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 $3 million, have a salvage of $0.5
million and a life of 6 years. Estimates of materials,
labor costs, and other direct costs are $1.5 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.
Show both hand and spreadsheet solutions.
Department Basis Rate
Expected
Usage
X Direct labor
cost
$2.40 per $ $450,000
Y Materials
cost
$0.50 per $ $850,000
Z Number of
inspections
$20 per
inspection
$4,500
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 4 images
