ACS Inc. will be producing and marketing a new line of medical devices products.

Question

ACS Inc. will be producing and marketing a new line of medical devices products. Most products use a key ingredient (Ingredient X). At this time, ACS doesn't know if it’s more convenient to make Ingredient X in-house or buying it from a supplier. The available information is the following: producing Ingredient X internally would require an investment (fixed cost) of $1.5 million and a variable cost of $2,000/pound. A supplier next to ACS could provide the product for $2,800/pound. The auditing, compliance, and other process to qualify the supplier has a onetime total-cost of $15,000. From information provided by marketing, manufacturing estimates that they will need between 1,750-1,950 pounds to be able to produce all the demand.

Explanation / Answer

Studying the above situation its clear that their are three scenarios in which the condition of the manufacturing/production would take place also their are three different prices floating in the scenario which are found by the audit compliance commitee the conclusion was that the prices would be down if proper negotiation was done in this case the negotiation didnt take place which affected the growth of the product.

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