Determine allowable setup cost, Advanced Statistics

A metal fabrication process uses a die-cast metal fastener at a uniform rate of 300 units per year. Currently, this item is currently purchased from an external supplier at a unit cost of $12, with an ordering cost of $30 per order. This fastener could be produced internally on a batch production basis at a variable cost of $11.20 per unit. There is sufficient capacity available to sustain a production rate of 1,000 units per year during the manufacture of this item. The firm's inventory holding cost rate is $0.25/$/year, but the setup cost for producing a batch of this metal fastener cannot be estimated accurately at this time.

(a)    What is the maximum allowable setup cost per batch for this item, such that it is more desirable (based on relevant costs alone) to produce it internally, rather than buying it from the current external source?

(b)   After conducting a thorough time study, it is estimated that the setup cost for this fastener would be $180 per production batch. In the meantime, the Vice President of Parking has issued a company-wide order requiring that the average investment in the inventory (disregarding safety stock) of any produced or purchased metal part is not to exceed $500. If this restrictive order is to be followed, should the metal fastener in question be produced internally or purchased? What is the production or procurement (as the case may be) lot size and the consequent annual total relevant cost for this fastener?

(c)    A second potential supplier for this part has offered the following price schedule:

Purchase Lot Size (Units):    1-49            50 -199           200-499           500 or More   

  Unit Price ($ per Unit):       12.20             11.98                11.80               11.50

Is your decision in part (b) affected by this new information, if the Parking VP's order is rescinded?

Posted Date: 2/25/2013 12:09:22 AM | Location : United States







Related Discussions:- Determine allowable setup cost, Assignment Help, Ask Question on Determine allowable setup cost, Get Answer, Expert's Help, Determine allowable setup cost Discussions

Write discussion on Determine allowable setup cost
Your posts are moderated
Related Questions
Goodmanand kruskal measures of association is the measures of associations which are useful in the situation where two categorical variables cannot be supposed to be derived from

Primary Model Below is a regression analysis without 17 outliers that have been removed Regression Analysis: wfood versus totexp, income, age, nk The regression equat

explain the graphical method of measure of central tendency

importance of time series on the number of babies given birth

The division of a sample of observations into several classes, together with the number of observations in each of them.  It acts as a useful summary of the main features of the da

It is the survey which is carried out in Great Britain on a continuous basis since 1971. About 100 000 households are included in this sample every year. The main goal of the surve

Non parametric maximum likelihood (NPML) is a likelihood approach which does not need the specification of the full parametric family for the data. Usually, the non parametric max

Product-limit estimator is a method for estimating the survival functions for the set of survival times, some of which might be censored observations. The logic behind the procedu

Healthy worker effect : The occurrence whereby employed individuals tend to have lower mortality rates than those who are unemployed. The effect, which can pose the serious problem

Bootstrap : The data-based simulation method/technique for the statistical inference which can be used to study the variability of the estimated characteristics of the probability