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Pitt Motors manufactures small engines. The engines are sold to manufacturers who install them in products like lawn movers, snow blowers etc. The company currently

Pitt Motors manufactures small engines. The engines are sold to manufacturers
who install them in products like lawn movers, snow blowers etc. The company
currently makes all the parts used in these engines, but is considering a proposal
from an external supplier - Ohio Electronics to supply the starter assembly for
the engines.
The starter assembly is currently manufactured in Division 3 of Pitt Motors. The
costs relative to Division 3 for the last 12 months are as follows:
Direct Materials $ 200,000
Direct Manufacturing Labor 150,000
Manufacturing Overhead 400,000
Total $750,000
Over the last year, Division 3 manufactured 150,000 starter assemblies; the
average cost for starter is computed as $5(750,000/150000). Further analysis of
manufacturing overhead revealed the following information. Of the total
manufacturing overhead, only 25% is considered variable fixed portion, $150,000
is an allocation of general overhead that would remain unchanged for the
company as a whole if production is discontinued. A further $100,000 of the fixed
overhead is avoidable if self-manufacture of the starter assembly is discontinued.
The balance of the current fixed overhead, $50,000 is the division manager salary.
If self-manufacture of the starter assembly is discontinued, the manager of
Division 3 will be transferred to Division 2 at the same salary. This move will allow
the company to save the $40,000 salary that would otherwise be paid to attract
an outsider to this.
Ohio Electronics, a nearby supplier has offered to supply starter assembly at $4
per unit. Since this price is less than the current average unit cost of $5 per unit,
the VP of Manufacturing is eager to accept this offer. Should the outside offer
from Ohio Electronics be accepted? Explain your reasoning. ( Hint: Production
output in the coming year may be different from production output last year)
How at all, would your response change if the company could use the vacated
plant space ( from going to the outside supplier Ohio Electronics) and, in doing so
avoid $50,000 of outside storage charges currently incurred for general storage
needs? Why is this information relevant or irrelevant?
Please show me what are the constraints and the decision varaibles , and how my excel spredsheet shuld look like when you insert all this information, after using Solver.

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