A Company Asked One of Their Analysis Team to Analyze

question 31

Essay

A company asked one of their analysis team to analyze and create models that help decide whether they should manufacture a particular product or outsource its production. The different components are given below:
Fixed Cost, FC = $25,000
Material Cost per Unit, MC = $2.15
Labor Cost per Unit, LC = $2.00
Outsourcing Cost per Unit, O = $4.50
Note that per-unit material and labor cost together make up the variable cost per unit. a. Build an influence diagram that illustrates how to calculate the difference in cost of manufacturing and outsourcing.
b. Using mathematical notation, give a mathematical model for calculating the difference in cost of manufacturing and outsourcing.
c. Implement your model from part (b) in Excel using the principles of good spreadsheet design.
d. If the company wants to make 30,000 units of a particular product, what are the savings due to outsourcing?

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Definitions:

Increase in Sales

A rise in the volume or value of products or services sold by a business, indicating potential growth or market expansion.

Independent Demand

A type of demand that is not influenced by the demand for other products but rather by market conditions or customer needs.

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Custom-made storage units designed and built to meet the specific dimensions, style, and needs of a homeowner or business.

Green Enterprises

Businesses that operate with a focus on environmental sustainability, reducing carbon footprint, and promoting eco-friendly practices.