A company asked one of its analysis teams to analyze and create models that help decide whether it should manufacture a particular product or outsource its production. The different components are given below.
Fixed Cost, FC = $25,000
Material Cost per Unit, MC = $2.15
Labor Cost per Unit, LC = $2.00Outsourcing Cost per Unit, O = $4.50
?
Build an influence diagram that illustrates how to calculate the difference in cost of manufacturing and outsourcing.Using mathematical notation, construct a mathematical model for calculating the difference in cost of manufacturing and outsourcing.Implement your model from part (b) in an Excel spreadsheet model using the principles of good spreadsheet design.Using the spreadsheet model, what will be the resulting savings due to outsourcing if the company wants to make 30,000 units of a particular product?
What will be an ideal response?
a.
b. Savings by Outsourcing (SBO) is the difference between the Total Outsource Cost (TOC) and the Total Manufacturing Cost (TMC)
?
SBO = TOC - TMC
The cost-volume model for manufacturing q units is
TMC = FC + ((MC + LC) × q)
And, a mathematical model for outsourcing q units is
TOC = O × q
c.
d. The model shows that the cost of manufacturing 30,000 units is $149,500 and the cost of outsourcing the same 30,000 units is $135,000. The savings from outsourcing is $14,500.
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Fill in the blank(s) with correct word