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In today's fastpaced business environment, decision making is a critical task for managers. Making the right decisions is vital to the success of a companv,
In today's fastpaced business environment, decision making is a critical task for managers. Making the right decisions is vital to the success of a companv, and it requires access to relevant information. Cari Pump {CF} w'Companzir manufactures water pumps. An important part of the pump is its electronic component [EC]. lCari Pump collects data with the following cost information about the costs of making ECs in 2019 and the expected costs in EDEIEI: Current Costs {2019: Expected Costs [Mil]: Fired mum: actrrrin cost Fixed manufacturing overhead costs that can be avoided if ts are not made 360,900 3,l] Fixed manufacturing overhead costs of plant depreciation, insurance, and administration that cannot be avoided even if ECs are not made BSD-, 35!], Portable manufacturing costs Direct material cost per EC 95 EDD 5 191} Direct manufacturing labor cost per EC t] 55 Variable manufacturing cost per batch for setups, Materials handling, and quality control 2,000 1,3l] Cari Pump manufactured 9,000 ECs in 2019 in 30 batches of 300 each. In 2020, Cari Pump anticipates needing 10,500 ECs. The ECs would be produced in 60 batches of 175 each. A supplier, Furry Deals has enquired about supplying ECs to Cari Pump in 2020 at $350 per EC on whatever delivery schedule Cari Pump wants. Required: Part A 1. Calculate the total expected manufacturing cost per unit of making ECs in 2020? (20 Marks) 2. Suppose the capacity currently used to make ECs will become idle if Cari Pump purchases ECs from Furry Deals. Using quantitative analysis alone, should Cari Pump make ECs or buy them from Furry Deals? (20 Marks) 3. Suppose that if Cari Pump purchases ECs from Furry Deals, its best alternative use of the capacity currently used for ECs is to make and sell special electronic components (SECs) to the Spec Company. Cari Pump estimates the following incremental revenues and costs from SECs: Total expected incremental future revenues $2,200,000 Total expected incremental future costs $2,350,000 On the basis of quantitative analysis alone, should Cari Pump make ECs or buy them from Furry Deals? (20 Marks)Part B By reference to the data in part A: 1. There are both quantitative and qualitative factors for decision making by management. How does the consideration of qualitative factors improve decisions made by managers? (10 Marks) 2. What is an opportunity cost and why should it be included when making decisions? (10 Marks) 3. What are some of the key factors that inuence group interaction in a decision making environment in business? (ll) Marks)
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