Question
Fast can produce a part for their 1000 GB SSD internally or outsource its manufacture. Fast has simplified the decision as much as possible and
Fast can produce a part for their 1000 GB SSD internally or outsource its manufacture. Fast has simplified the decision as much as possible and identified all the costs that would result if they decide to manufacture the part in-house to two components: a Fixed Cost (FC) of setting up internal production of $50,000 and a Unit Variable Cost (UVC) of $125. Fast has also identified and calculated the unit cost of outsourcing the part, the Outsourcing Unit Cost (OUC), of $158. The decision comes down to the difference between the cost to manufacture, Total Manufacturing Cost (TMC), and the cost of outsourcing, Total Outsourcing Cost (TOC). The key parameter is uncertain - the Demand (D). For high demand, the FC can be spread over more sales but for lower demand, the FC becomes a burden and it would be more economical to outsource the production of the part. 1. Build a decision model to help Fast choose a path for production of the part. Demand has been estimated to be 1500 units. Find the difference (Delta = TMC - TOC) and recommend a decision as to "Manufacture" or "Outsource." Build your model using the basic framework for the decision model on the tab 1-Outsourcing Model in the Excel workbook you downloaded.
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