Question
A bicycle manufacturer currently produces 300,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside
A bicycle manufacturer currently produces 300,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier for $2 per chain. The plant manager believes their direct in-house productions costs to make their own chains is $1.50 per chain. Machinery to manufacture would cost $250,000 and would be obsolete in 10 years. They would use straight-line depreciation for tax purposes to $0 and then can be sold for scrap for $20,000. Estimation from the plant manager that it would take $50,000 for inventory.
Should they continue to outsource or should they manufacture their own chains?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started