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3. (Make or Buy?) Bell Computer is considering to subcontract the production of a moth- erboard that is used in one of the company's popular
3. (Make or Buy?) Bell Computer is considering to subcontract the production of a moth- erboard that is used in one of the company's popular computers to an overseas company. Hence, they need the help of an ASU IE graduate to compare the annual costs of two options: produce internally or buy from the overseas company. The annual demand for the motherboards is 30,000 units, and the operations of Bell Computer cannot tolerate any shortages. The holding costs are based on a 25% annual interest rate. (a) If this specific motherboard is produced internally, it will cost $ 980 each time the machines are setup for a production run. The unit production cost is estimated to be around $75 by the accounting department. Bell Computer can produce the motherboard at a rate of 50,000 per year. i. Calculate the economic production lot size for the internal production option. ii. What is the length (i.e., duration) of each production run? iii. Determine the total annual cost (including annual production costs) if Bell Computer produces the motherboards internally. (b) If the motherboards are bought from the overseas company, it will cost $ 250 each time an order is placed. The overseas company charges $125 for each motherboard, but they do promise immediate deliveries i. Calculate the economic order quantity for the subcontracting option. ii. Determine the total annual cost in this case. (c) Based on your findings above, should Bell Computer make or buy the motherboard
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