Question

المر 11 Samsung Electronics is trying to reduce supply chain risk by making more responsible make-buy decisions through improved cost estimation. A High- use component (expected usage is 2713 units per year) can be purchased for $25 per unit with delivery promised within a week. Alternatively, Samsung can make the component in-house and have it readily available at a cost of $5 per unit, if equipment costing $150,000 is purchased. Labor and other operating costs are estimated to be $35,000 per year over the study period of 5 years, Salvage is estimated at 10% of first cost and i=12% per year a- Determine the breakeven quantity b- Evaluate each alternative and recommend making or buying at the expected usage level

Answer 1

Slution : costing - $ 150,000 Purchased Given that Purchase for - $25 Readily available cast - $5 Per ant equipment Labea, operating cost estimated $35200, 5 years Solange is estimated at 104. , frost cast i =p7- Berycon. at 27613 units per year. Total present value if each unit is purchased for 958 per can't = 2713*95(1/1.2 1/1 192 +1 h-193419_124+2/ 1.125 = -244493.94592 Total Present value of equipment in Purchased 3 - 150,000 - 35000 (1/1.12+1/1.192+1/1123+1/1.1947 117.1..125) +15, 000/1.125 - 267655.764246 Since the present value is higher (costare lower) in the first method, each cznit should be geferalely puchased at 256 per unit as in the first method. Hope it helps, Do ask for any clarifications if CS Scarequired! CamScanner