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An electronics company is manufacturing a product for use in the computer market. This product uses a wireless module which the company can either buy
An electronics company is manufacturing a product for use in the computer market. This product uses a wireless module which the company can either buy in from an external supplier at a cost of $35 or manufacture itself in-house. As the product engineer, you have been asked to calculate which option is best over a 1-year period. The company must manufacture 10,000 modules per year to meet demand. If you decide to purchase externally, you would not be able to save on the fixed overhead costs. The internal costs to produce the wireless modules are as follows: Table: Cost Breakdown Costs per Module per Per Direct Material Direct Labour Variable Overhead Fixed Overhead (per module) Total Annual Cost 10,000 modules (S) 180,000 100,000 20,000 260.000 Unit (Module) costs ($) 18 10 2 26 $ 560,000 $ 56 a. Using the information above, compare the cost of producing the modules in-house and purchasing from an external supplier. Based on this calculation, which option would be best based on a financial decision? [5] b. You manager now tells you that the facilities used to make the modules in-house could be used for another product and the fixed overhead costs would be transferred to the other product. Does this change your decision? [5] c. Using the information in the above table, if your company can sell the modules for $96 each, draw a table showing production costs and sales revenue over volumes of 0 -> 10,000 modules per year. [5] d. Draw a Breakeven chart showing Total Cost, Variable Cost, Fixed Cost, and Revenue. Show the Breakeven point and calculate its value. [5] e. Your sales manager tells you he can sell another 2000 modules per year (total 12,000). Assuming the factory has the capacity and Fixed Overhead costs remain the same, how much profit will the company make at this new production figure. [5]
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