Problem 3 Question Help * The ABC Company had two optlons for sourcing mclded pl

Question

Problem 3 Question Help * The ABC Company had two optlons for sourcing mclded plastic parts, and these options are presented in the table below. Now, the ABC Company has identified another pctential supplier for the molded plastic parts. The new supplier has bld S0.0600 per part but also will impose a shipping and handling charge of $0.0100 per unit. Additional inventory handlingdc 36-month contract. Note that the forecasted demand is a total of 1 million units over the 36 montns. of the More Infto Click the icon to view the total cost analysis for the sourcing decision at ABC. a. The total cost per unit for the new supplier is $.07344. (Enter your response rounded to four decimal places.) The outsourcing option with the new supplier is cheaper b. Suppose the three-year volume is expected to rise to 1.5 million, rather than 1 million, molded plastic parts. The total cost per unit associated with insourcing is nowS(Enter your responses rounded to four decimal pieces.) nsourcing option Operating Expenses than insourcing. Direct labor Benefits (50%) Direct material 50.0800 S0.0400 $0.0100 S0.0057 $0.0029 Indirect labor Benefits (50%) S8,000 absorbed over 1,000,000 units 50.0080 50.0400 $0.0700 $0.2566 Overhead $70,000 absorbed over 1,000,000 units Total cost per unit Outsourcing option Purchase price Shipping and handling Inventory charges Administrative costs Total cost per unit 0.1200 50.0050 $0.0040 50.0010 $0.1300 Savings per unit Total savin S0.1266 $126,600 1 mi ion units

Explanation / Answer

a) Total cost per unit for the new supplier = 0.07344  

as determined earlier

b) Total cost associated with insourcing = direct labor + benefits + direct material + indirect labor + benefits + equipment depreciation + overhead + engg/design costs

= 0.08 + 0.04 + 0.01 + 0.0057 + 0.0029 + 8000/1500000 + 0.04 + 70000/1500000 = $ 0.2306

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