A company manufactures two types of lawn mowers: riding mowers and push mowers.The company has the option of manufacturing the mowers in-house or outsourcing the entire operation.In-house manufacturing requires the following four operations: production,assembly,electrical wiring,and final inspection.The following table summarizes the weekly hours of processing time available and the processing time required by each operation.
The company has a weekly demand of 5 riding mowers and 3 push mowers.The company makes its riding mowers in-house for $500 each and its push mower for $200 each.Alternatively,it can outsource its riding and push mowers for $550 and $225 each,respectively.Use Excel to formulate and solve this "make" or "buy" problem.
Definitions:
Factory Overhead
The total indirect costs associated with manufacturing, excluding direct labor and direct materials.
Direct Materials
Raw materials that can be directly attributed to the production of finished goods in a manufacturing process.
Salesperson Commissions
Payments made to sales staff based on a percentage of the sales they generate, used as an incentive to increase sales performance.
Prime Costs
The direct costs of manufacturing, specifically direct labor and material costs.
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