I calculated the following for question 8) but don’t know how to calculate quest

Question

I calculated the following for question 8) but don’t know how to calculate question 9). Please let me know if my calculations are correct.
Total annual costs:
Process A=40,000x50(10,000)=$540,000 Process B=36,000x52(10,000)=$556,000 Buy=0x51(10,000)=$510,000 So buying is the best alternative.
Help please. 8. Given the following data, determine the total annual cost of making with each of proc and B and of buying. Estimated demand is 10,000 units a year. Which alternative is (LOI) ess A st? Make Process A Process B Buy $51 Variable cost per unit Annual fixed cos Transportation cost per unit $ 50 $40,000 $ 52 $36,000 $ 2 9. For the previous problem, suppose that the operations manager has said that it would be pos- sible to achieve a 10 percent reduction in the fixed cost of Process B and a 10 percent reduction in B's variable cost per unit. Would that be enough to change your answer if the estimated annual cost to achieve those savings was $8,000? Explain. (LO1)

Explanation / Answer

In the first answer you have not kept the transportation costs in mind .Cost of buying is 530000

Although buying was still the best alternative in question 1

Now as for question 2 the reduction in fixed costs is 10 percent which means 3600 is to be reduced from 36000 .... Hence the fixed cost now is 32400

Also the variable costs are reduced in b ....5.2 per unit is reduced ....hence the actual cost becomes 46.8 per unit ....for 10000 units this becomes 468000

Hence the revised cost for b process is 500400

Additional costs of achieving the same of 8000 needs to be added and the final revised cost becomes 508400

This is lesser than the buying costs

In this case you will chose b

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