The Management of James Industries Has Been Evaluating Whether the Company

question 52

Essay

The management of James Industries has been evaluating whether the company should continue manufacturing a component or buy it from an outside supplier. A £200 cost per component was determined as follows:
James Industries uses 4,000 components per year. After Light, SA., submitted a bid of £80 per component, some members of management felt they could reduce costs by buying from outside and discontinuing production of the component. If the component is obtained from Light, SA., James's unused production facilities could be leased to another company for £50,000 per year.
Required:

a.
Determine the maximum amount per unit James should pay an outside supplier.
b.
Indicate if the company should make or buy the component and the total monetary difference in favor of that alternative.
c.
Assume the company could eliminate production supervisors with salaries totaling £30,000 if the component is purchased from an outside supplier. Indicate if the company should make or buy the component and the total monetary difference in favor of that alternative.

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Definitions:

Equal Employment Opportunity Commission

A federal agency in the United States charged with enforcing laws against workplace discrimination.

Federal Communications Commission

A government agency in the United States responsible for regulating interstate and international communications by radio, television, wire, satellite, and cable.

Industrial Regulation

Governmental regulation of industries to correct market failures, protect consumers, and preserve competitive markets.

Social Regulation

Rules and policies designed to correct market failures that affect people's health, safety, welfare, and social wellbeing.