Scribd
Upload
40 views2 pages

Chapter 01

Uploaded by

rahul

Power Notebooks is deciding whether to purchase LCD screens from a supplier or manufacture them in-house. Purchasing screens costs $100 each with no fixed costs, while manufacturing has $100,000 in fixed costs but screens cost $75 each to produce. A spreadsheet and graph show that purchasing is cheaper if annual production is below 4,000 units, while manufacturing is cheaper above 4,000 units. Algebraic calculations also show the break-even point is 4,000 units.

Copyright:

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

Chapter 01

Uploaded by

rahul
40 views2 pages
Power Notebooks is deciding whether to purchase LCD screens from a supplier or manufacture them in-house. Purchasing screens costs $100 each with no fixed costs, while manufacturing has $100,000 in fixed costs but screens cost $75 each to produce. A spreadsheet and graph show that purchasing is cheaper if annual production is below 4,000 units, while manufacturing is cheaper above 4,000 units. Algebraic calculations also show the break-even point is 4,000 units.

Copyright

© © All Rights Reserved

Available Formats

PDF, TXT or read online from Scribd

Did you find this document useful?

Is this content inappropriate?

Power Notebooks is deciding whether to purchase LCD screens from a supplier or manufacture them in-house. Purchasing screens costs $100 each with no fixed costs, while manufacturing has $100,000 in fixed costs but screens cost $75 each to produce. A spreadsheet and graph show that purchasing is cheaper if annual production is below 4,000 units, while manufacturing is cheaper above 4,000 units. Algebraic calculations also show the break-even point is 4,000 units.

Copyright:

© All Rights Reserved
Download as PDF, TXT or read online from Scribd
Download as pdf or txt
40 views2 pages

Chapter 01

Uploaded by

rahul
Power Notebooks is deciding whether to purchase LCD screens from a supplier or manufacture them in-house. Purchasing screens costs $100 each with no fixed costs, while manufacturing has $100,000 in fixed costs but screens cost $75 each to produce. A spreadsheet and graph show that purchasing is cheaper if annual production is below 4,000 units, while manufacturing is cheaper above 4,000 units. Algebraic calculations also show the break-even point is 4,000 units.

Copyright:

© All Rights Reserved
Download as PDF, TXT or read online from Scribd
Download as pdf or txt
You are on page 1/ 2

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.


Range Name Cell
ManufactureFixedCost D2
A B C D ManufactureTotalCost D4
1 Purchase Manufacture In-House ManufactureUnitCost D3
2 Fixed Cost $0 $100,000
3 Unit Cost $100 $75
PurchaseFixedCost B2
4 Total Cost $400,000 $400,000 PurchaseTotalCost B4
5 PurchaseUnitCost B3
6 LCD Screens Needed (Q) 4,000 Q C6

A B C D
4 Total Cost =PurchaseFixedCost+PurchaseUnitCost*Q =ManufactureFixedCost+ManufactureUnitCost*Q

1
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.

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.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy