The time duration that the Company P will take to repay the amount required to expand the business. Introduction: A classic problem faced by a firm is ‘make or buy decision’.The firm can either purchase the product or can produce it internally at a cheaper unit cost. However, while choosing the later option the firm requires new investment for expanding its production capability.

Question

Want to see the full answer?

Answer 1

Question

Chapter 1.11, Problem 40P

a.

Summary Introduction

To determine: The time duration that the Company P will take to repay the amount required to expand the business.

Introduction: A classic problem faced by a firm is ‘make or buy decision’.The firm can either purchase the product or can produce it internally at a cheaper unit cost. However, while choosing the later option the firm requires new investment for expanding its production capability.

b.

Summary Introduction

To determine: The time duration taken by Company P to pay back the amount spent on expansion if the sales expect an increase by 15%.

Introduction: The ‘make or buy decision’ problem, faced by a firm clarifies essential trade off on investment and economies of scale. When the quantity of sales goes on increasing, the production cost of per unit falls.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

15-8

A company is planning to purchase 10,000 units of a particular item in the year ahead. The item is purchased in boxes each containing 10 units of the item, at a price of €400 per box. The cost of holding an item in inventory for a year (including insurance, interest and space costs) is 10% of the purchase price. The cost of placing and receiving orders is to be estimated from cost data collected relating to similar orders, where costs of €7,000 were incurred on 25 orders. It should be assumed that ordering costs change in proportion to the number of orders placed. 5% should be added to the above ordering costs to allow for inflation. Assume that usage of the item will be even over the year. Required: (a) Calculate the economic order quantity (EOQ) in boxes which minimises total costs (b) Outline when and why it is appropriate to use economic batch quantity (EBQ)

Brit Traders is planning on buying some RAINCOATS to sell during the Spring season. Due to prevailing market prices and the estimated costs, it plans on selling each umbrella at $25. The store manager has been in some communication with an online vendor who is selling the RAINCOATS at discounted prices depending on the units bought. Below is the quantity discount structure offered by the vendor. Quantity Discount Structure At least Unit cost 0 14.25 150 12.50 300 11.00 450 10.50 600 8.75 The fixed cost for the store is $120 and a branding cost of $2.75 for each umbrella. The manager wants to order 500 umbrellas but is uncertain about the demand which could be between 200 – 800. He has also decided that in case all the umbrellas will not be sold before the end of the season, any leftovers will be sold at a clearance price of $9 for each umbrella. The store manager has approached you to help him build a spreadsheet model to help him in making a decision on how many pieces to buy Create a…