Reference no: EM132239171

Question: TELOXY ENGINEERING

Using the expected value, is it economically better to make or buy the component?

Unit cost                                             : 10,000 10,000 10,000 10,000 10,000                                      

Cost of the resources per element: 40           40         40          40          40

Elements had defects per cost            : 120        120      120         120        120

Percentage default                   0                10        20            30         40

The possibility of the availability (%)      10              20         30           25        15

Charges ($)                              100,000      10,000   10000 10000 10,000

The cost of the material expected         400,000          400,000    400,000 400,000 400,000

Defaulted elements                0.00               1000.00       2,000      3,000      4,000

All defaulted elements                       0.00               120,000      240,000   360,000 480,000

Cost possibility ($)            50,000                124,000         222,000    215,000      147,000

$758,000 was the exact figure which was expected should the firm consider the manufacturing of the product in them. However, 10,000 ×72= $ 720,000was the amount it would cost the firm in purchasing the complete product. From the calculations above, it is well postulated that the company was supposed to incur a lot of expenses in buying the raw materials and all the other resources to manufacture the product by themselves (Helsloot & Groenendaal, 2011). The company should around $38,000 if it could consider the option in purchasing the finished product. However, being that the company did not count the loss it could have in producing the product, many factors forced the company not to go for the most economical option. 

The company maybe had evaluated its relationship with the customers and through their contact realized the best design the customers desire to purchase it (Schoeneborn, 2010). This way the company now decided to make the product from the customers' interest. Optionally, the firm can decide to produce the product to be the sole producer in the region. The region maybe did not have the firm producing this product, and thus, this company realized any opportunity to be producing the product as it distributes to the other firms within the region.

References: Helsloot, & Groenendaal, (2011). Naturalistic Decision Making in Forensic Science: Toward a Better Understanding of Decision Making by Forensic Team Leaders. Journal of Forensic Sciences, 56(4), 890-897. Doi: 10.1111/j.1556-4029.2011.01714.x

Schoenborn, (2010). Organization as Paradox Communication: Luhmannian Contributions to 'Communication Constitutes Organization' (CCO). SSRN Electronic Journal. Doi: 10.2139/ssrn.1647606