A Manufacturer Has a Choice of Purchasing and Installing a Drilling

question 5

Essay

A manufacturer has a choice of purchasing and installing a drilling machine having the drill work done by an outside supplier. For the in- house drilling the fixed costs are
$100,000 with a variable cost of $12. To purchase outside, the variable costs are $20 per unit.
What is the cost equalization point. Should the company have the heat treating done outside if the annual volume is 1,000 units? 10,000 units?

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Definitions:

Activity Duration

the total time required to complete a specific activity or task in the process of project management or planning.

Beta Distribution

A statistical distribution representing probabilities of outcomes across a range of 0 to 1, often used in Bayesian statistics for estimating unknown parameters.

PERT Analysis

A project management tool used to schedule, organize, and coordinate tasks within a project, which stands for Program Evaluation and Review Technique.

Expected Activity Times

Predicted durations for tasks or activities within a project, often based on historical data and used in planning and scheduling.