Question:

Precision Bearings Inc. makes two bearings, 13100 and 13200 for use in its own production. Data regarding these two bearings follow: 13100 2 Machine hours required per unit Cost per unit: Direct material $2.25 Direct labor $4 00 we 1rv'ariable $2.00 Fixed $3.75 $12.00 Precision=s annual demand for 13100 and 13200 are 3,000 units and 11,000 units respectively. The company has only 41,000 machine hours to devote to the production of these bearings. This capacity would be idle if not used for these two bearings. An outside company has o'ered to sell Precision its annual supply of the two bearings at prices of $11.25 for 13100 and $13 .50 for B200. Required: 1. What should be Precision's outsourcing decision? That is, how many units of each bearing should Precision outsource andfor produce in house? 1Mhat would he the net savingfcost relative to completely outsourcing the two bearings?r 2. Answer this question independent of 1 above. Suppose Precision wants to drop 13100. Assume that 41,000 available machine hours has a traceable, avoidable xed cost of $44,000, which would be incurred ifcmy amount of this available capacity of 41,000 hours is used. (This is the listed cost of'jigs= dies and other items required to make 13200 internally). 1What is the maximum price Precision should agree to pay the suppher for B200? 3. Comment on any qualitative considerations that Precisionls management should consider in such an outsourcing decision