Suppose that a manufacturer has identified the following options for obtaining a
ID: 363434 • Letter: S
Question
Suppose that a manufacturer has identified the following options for obtaining a machined part. It can buy the part at $200 per unit (including materials); it can make the part on a numerically controlled semiautomatic lathe at $75 per unit (including materials); or it can make the part on a machine center at $15 per unit (including materials). There is negligible fixed cost if the item is purchased; a semiautomatic lathe costs $80,000; and a machining center costs $200,000.
The housing is sold at $300 per unit.
6. How much will be the manufacturer’s total variable cost if it makes10,000 units in-house using the semiautomatic lathe option? ____________
7. How much will be the manufacturer’s total cost if it makes10,000 units in-house using the semiautomatic lathe option? ___________
8. Based on the original selling price per unit of $300, how much is the TOTAL contribution margin for the Make option using the semiautomatic lathe if 10,000 units are produced and sold? ________
9. At Q=10,000 what is the total revenue for the Buy option? ________
10. At Q=10,000 what is the total profit for the Buy option? ________
11. At Q=10,000 what is the total profit for the Make option using the semiautomatic lathe? ________
12. If the housing is sold by the manufacturer at $200 per unit instead of the original price of $300, how much is the PER UNIT contribution margin for the Make option using the semiautomatic lathe? _____
13. If the housing is sold by the manufacturer at $200 per unit instead of the original price of $300, what is the breakeven quantity for the Make option using the semiautomatic lathe? _____
Suppose that a manufacturer has identified the following options for obtaining a machined part. It can buy the part at $200 per unit (including materials); it can make the part on a numerically controlled semiautomatic lathe at $75 per unit (including materials); or it can make the part on a machine center at $15 per unit (including materials). There is negligible fixed cost if the item is purchased; a semiautomatic lathe costs $80,000; and a machining center costs $200,000.
The housing is sold at $300 per unit.
Explanation / Answer
6) Variable cost per unit for semi automatic lathe machine is 75$
For 10,000 units, total variable cost = 75*10000 = 750,000$
7) Total cost for semi automatic lathe = Fixed cost + variable cost = 80,000 + 750,000 = 830,000$
8) Total Revenue for 10000 units = 10000*300 = 3,000,000
Total contribution margin = Total Revenue - Total cost = 3,000,000 - 830,000 = 2,170,000
9) Total revenue for Buy Option at Q = 10,000 is = 300*100000 = 3,000,000
10) Total Profit for Buy = Total Revenue - Total cost = 3,000,000 - 200*10000 = 1,000,000
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