A company is deciding if it should design a product in-house or outsource the design. If outsourced, the cost for a low bidder would be $40,000, and the cost for an expensive bidder would be $100,000
To design in-house would require overtime for an already stretched design team with total costs of $70,000. If all three designs (in-house, low bid, high bid) are equal in quality and the likelihood of finding a low bidder is 60% (meaning that 40% of the time the firm will have to hire the expensive bidder), should the company outsource design or do it in-house?
EMV of outsource is .4(100,000 ) + .6(40,000 ) = $64,000
EMV of in-house is $70,000
Thus to minimize costs the firm should outsource the design.
You might also like to view...
Off-the-shelf products are ____.
A. software products developed in-house for your company's use B. software products that are developed and distributed commercially C. custom software products developed for high-paying customers D. reusable software utilities that are easily supportable
In a just-in-time (JIT) environment, machines and workers are often rearranged into manufacturing cells
Indicate whether the statement is true or false
Which of the following types of companies would be most likely to benefit from activity-based costing?
A) Companies with a low potential for cost distortions B) Companies that have a large proportion of unit-level costs C) Companies that have a relatively high proportion of overhead compared to direct materials and direct labor D) None of these
A . What are the two types of duress and what is the effect of each on the contract involved? b. Give an example of each type of duress. c. Who does the law intend to protect by reason of the defense of duress? Why does the law protect this type of person?