operation management Thanks! Document?-Word References Mailings Review Viewellme
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operation management
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Document?-Word References Mailings Review Viewellme what yeu want to do Marine International manufacturers an aquarium pump and is trying to decide whether to produce the fiter system that goes with the pump in-house or should they outsource filter system production another company, Bayfront Manufacturirg, Marine Interrational's expertise is producirg the pumns nself, but senior management is considering taking on the production of the fiters too. est ablish a filter producticn area determined that the food costs OFc) wil be $370000 a year and they estimate the variable cost (VC h Housel to produce the filter is approsimately $11.27 per filter system. If Manine Interna outsources the fiter systems to Bayfront Manufactuning, Esyfrant Manufacturing wil charge Mrne international $25 per filter system. Therefore, should Manine International outsource the production of the filter system to Baytont Manufacturing it Mrre Internationals sells 25,000!Q) Pumps a Now, to on site at Manine International, the engineering departrment has i tiona ? Now to do this, you wall need to first, calculate the outsource breskeven point (Q") What did come up with? When might Marine Intemational prodace in-house or when they might outsource year to Baymont? What would be the optimal decision in this case and why? Canfirm your decision by then calculating Total Cost (TC) cakculations, Do the TC caloulatians support your initial dedsion based upon the Q" calculation? If not, why not? Finally, and ignoring the numbars alreody considered, lot's say the a vs. Q* are about even. Now what? Please support your position with the optimal number Please use the outsourcing tools in you to resolve the all of this. Defend your deoisions and show all work (umply cut and paste your work into tha response areal and discuss in depth, your solutio ons and patential outcomes. Make sure you not only produce numbers for all parts here, you and the lke. Ths is a very irwolved outsourcing problom. (Chapter 6, pages 113 116) is your reference.lExplanation / Answer
Total Cost (TC) = Fixed Cost + Q x Variable cost
TCinhouse = 370000 + 11.27Q* ----------(1)
TCoutsource = 0 + 25Q* ------------(2)
Solving for S after equating (1) and (2) we get, Q* = 370000 / (25 - 11.37) = 27146
So, for any value of Q more than 27146, in-house production is the best option. For Q less than 27146, we will outsource.
Option 1: Inhouse production
Fixed Cost = $370,000
Variable Cost = Volume * Unit variable cost = 25000*11.27 = $281,750
Total cost = Fixed Cost + variable Cost = $370,000 + $281,750 = $651,750
Option 2: Outsourcing
Total Cost = Cost per item * Volume = 25*25000 = $625,000
Since Q (25000) was less than Q*(27146), TC for Q is less for outsourcing
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