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 1 0"

pipe and 2000 m of 18" pipe be laid each week The limiting factor is the availability of specialized 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:

The costs of operating the machines are:

The costs of materials and supplies per metre are:

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 undertaking 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 11 10" 6 12 18" 18 12