Stone Company Manufactures a Product That Contains a Small Lens

question 119

Essay

Stone Company manufactures a product that contains a small lens.The company has always purchased this lens from a supplier for $17 each.Stone recently upgraded its own manufacturing capabilities and now has enough excess capacity (including trained workers)to begin manufacturing the lens instead of buying it.The company prepared the following per unit cost projections of making the lens,assuming that overhead is allocated to the part at the normal predetermined overhead rate of 75% of direct labor cost:
$\begin{array}{llr} \text {Direct materials } &\$7.82\\ \text { Direct labor } &7.00\\ \text { Overhead (fixed and variable)} &5.25\\ \text { Total } &\$20.07\\\end{array}$

The required volume of output to produce the lenses will not require any incremental fixed overhead.Incremental variable overhead cost is $0.68 per lens.Should Stone Company make or buy the lenses?

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Definitions:

Continuous Reinforcement

Reinforcing the desired response every time it occurs.

Partial Reinforcement

A conditioning schedule in which a reward is not administered every time the desired response is performed, leading to more resistant learned behavior.

Primary Reinforcement

A stimulus that satisfies basic survival needs and is inherently rewarding, such as food, water, or warmth, used in behavioral conditioning.

Negative Reinforcer

A stimulus whose removal or avoidance following a behavior increases the likelihood of that behavior occurring again in the future.