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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 of Pitt Motors. The
costs relative to Division for the last months are as follows:
Direct Materials $
Direct Manufacturing Labor
Manufacturing Overhead
Total $
Over the last year, Division manufactured starter assemblies; the
average cost for starter is computed as $ Further analysis of
manufacturing overhead revealed the following information. Of the total
manufacturing overhead, only is considered variable fixed portion, $
is an allocation of general overhead that would remain unchanged for the
company as a whole if production is discontinued. A further $ of the fixed
overhead is avoidable if selfmanufacture of the starter assembly is discontinued.
The balance of the current fixed overhead, $ is the division manager salary.
If selfmanufacture of the starter assembly is discontinued, the manager of
Division will be transferred to Division at the same salary. This move will allow
the company to save the $ salary that would otherwise be paid to attract
an outsider to this.
Ohio Electronics, a nearby supplier has offered to supply starter assembly at $
per unit. Since this price is less than the current average unit cost of $ 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 $ 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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