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    Solution To Solved Problems: 1.S1 Make or Buy

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    Vibhuti Batra

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    © All Rights Reserved
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    Solution To Solved Problems: 1.S1 Make or Buy

    Uploaded by

    Vibhuti Batra
    65 views3 pages

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    hillier6e_Chapter01

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    65 views3 pages

    Solution To Solved Problems: 1.S1 Make or Buy

    Uploaded by

    Vibhuti Batra

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    CHAPTER 1

    INTRODUCTION
    SOLUTION TO SOLVED PROBLEMS

    1.S1 Make or Buy


    Power Notebooks, Inc. plans to manufacture a new line of notebook computers. Management
    is trying to decide whether to purchase the LCD screens for the computers from an outside
    supplier or to manufacture the screens in-house. The screens cost $100 each from the outside
    supplier. To set up the assembly process required to produce the screens in-house would cost
    $100,000. The company could then produce each screen for $75. The number of notebooks
    that eventually will be produced (Q) is unknown at this point.
    a. Set up a spreadsheet that will display the total cost of both options for any value of Q. Use
    trial-and-error with the spreadsheet to determine the range of production volumes for
    which each alternative is best.
    If Power Notebooks purchases the screens, the fixed cost is $0 and the unit cost is $100.
    These data are entered into B2:B3.

    If Power Notebooks manufactures the screens, the fixed cost is $100,000 and the unit
    cost is $75. These data are entered into D2:D3.

    The number of LCD screens needed (Q) is unknown. Cell C6 will be used for this
    quantity.

    In general, Total Cost = Fixed Cost + (Unit Cost)(LCD Screens Needed). This formula is
    entered into B4 and D4.

    Trial and error with the spreadsheet shows that purchasing is cheaper if Q < 4000,
    manufacturing is cheaper if Q > 4000, and the costs are identical when Q = 4000.

    The spreadsheet is shown below.

    Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution


    without the prior written consent of McGraw-Hill Education

    1
    Rang e Name Ce ll
    ManufactureFixedCost D2
    ManufactureTotalCost D4
    ManufactureUnitCost D3
    PurchaseFixedCost B2
    PurchaseTotalCost B4
    PurchaseUnitCost B3
    Q C6

    b. Use a graphical procedure to determine the break-even point for Q (i.e., the quantity at
    which both options yield the same cost).
    To determine the ranges of Q for which each source is cheapest, graph the total cost
    versus Q, as shown below. The total cost lines cross at Q = 4,000. This is the break-even
    point for Q.

    Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution


    without the prior written consent of McGraw-Hill Education

    2
    c. Use an algebraic procedure to determine the break-even point for Q.
    The total cost if Power Notebooks purchases the LCD screens is TCpurchase = ($100)Q.
    The total cost if Power Notebooks manufactures the LCD screens is TCmanufacture =
    $100,000 + ($75)Q.
    The break-even point for Q occurs when TCpurchase = TCmanufacture.
    ($100)Q = $100,000 + ($75)Q when ($25)Q = $100,000, or Q = 4,000.

    Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution


    without the prior written consent of McGraw-Hill Education

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