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Make or buy decision Rivertown Electronics needs to procure a key component for an upcoming device and is debating between two procurement methods: purchasing from
Make or buy decision
Rivertown Electronics needs to procure a key component for an upcoming device and is debating between two procurement methods: purchasing from an external vendor or manufacturing it internally. The annual demand for this component is projected to be units.
Rivertown calculates its holding cost to be per year and has received the following proposals:
Option : Purchase from a vendor. TechSupply has offered Rivertown a price of $ per unit. Due to the need for specialized tooling, TechSupply also requires a fixed fee of $ per batch. Rivertown anticipates an additional $ per order plus $ per unit in shipping fees. TechSupply can produce at most units per batch.
Option : Inhouse production. Rivertown estimates it can manufacture the component at a rate of per day assuming working days per year Due to less efficient tooling processes compared to TechSupply, tooling will cost Rivertown $ per batch, and each unit costs $ to produce with no shipping costs as it is inhouse
Question:
What is the total cost from the vendor?
What is the total cost from inhouse production?
What per unit discount would TechSupply need to offer for Rivertown to reconsider its choice? Calculate to the nearest cent and enter the answer in terms of dollars eg cent should be entered as
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