Type your question here Susan Gilbert, a purchasing agent for Wisconsin Plastic
ID: 402573 • Letter: T
Question
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Susan Gilbert, a purchasing agent for Wisconsin Plastic Inc (WSI) is reviewing quotations from suppliers for a new plastic gear. Susan plans to either place an order for 12000 gears from a supplier with the least cost quotation or recommend that WSI purchase the necessary equipment and make the gear itself. Relevant data for this make-or-buy decision are found below:
Make Buy
Fixed Cost of Equipment $60000 0
Variable cost per part $16 $20
What should Susan recommend? Make or Buy? Why? Choose one.
Explanation / Answer
for making the gear
total cost = fixed cost of equipment + variable cost
=>total cost = 60000 + 16*12000
=>total cost = 252000
if buying
Total cost = 0 + 20*12000
=>total cost = 240000
total cost by buying is less than making
so,it is better to buy at order of 12000
if order is increased by 25%
total orde = 1.25*12000 = 15000
making
total cost = 60000 + 15000*16
=>total cost = 300000
by buying
total cost = 15000*20 = 300000
both are recomended when order size is 15000
because total cost is same for both cases
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