Advanced: Key factor and make or buy decision A construction company has accepted a contract to lay underground pipework. The contract requires that 2500 m of 10" pipe and 2000 m of 18" pipe be laid each week.

The limiting factor is the availability of special¬ ized equipment. The company owns 15 excavating machines (type A) and 13 lifting and jointing machines (type B). The normal operating time is 40 hours a week but up to 50% overtime is acceptable to the employees.

The time taken to handle each metre of pipe is:

A subcontractor has offered to lay any quantity of the 10" pipe at £18 per metre and of the 18" pipe at £12 per metre.
You are required to:

(a) calculate the most economical way of under¬ taking the contract; (15 marks)

(b) state the weekly cost involved in your solution to

(a) above; (5 marks)

(c) comment on the factors that management should consider in reaching a decision whether to adopt the minimum cost solution.

Transcribed Image Text:

Size of pipe Minutes per metre Machine A Machine B 10" 18" 6 18 22 12 The costs of operating the machines are: Machine Machine A B () () Fixed costs, per week, each 450 160 Labour, per crew, per hour: up to 40 hours per week over 40 hours per week 10 12 15 18 28 The costs of materials and supplies per metre are: