Roedel Electronics produces a variety of electrical components, including a remote controller for televisions and a remote controller for DVD players. Each controller consists of three subassemblies that are manufactured by Roedel: a base, a cartridge, and a keypad. Both controllers use the same base subassembly, but different cartridge and keypad subassemblies.

Roedel’s sales forecast indicates that 7000 TV controllers and 5000 DVD controllers will be needed to satisfy demand during the upcoming Christmas season. Because only 500 hours of in-house manufacturing time are available, Roedel is considering purchasing some, or all, of the subassemblies from outside suppliers. If Roedel manufactures a subassembly in-house, it incurs a fixed setup cost as well as a variable manufacturing cost. The following table shows the setup cost, the manufacturing time per subassembly, the manufacturing cost per subassembly, and the cost to purchase each of the subassemblies from an outside supplier:

a. Determine how many units of each subassembly Roedel should manufacture and how many units Roedel should purchase. What is the total manufacturing and purchase cost associated with your recommendation?
b. Suppose Roedel is considering purchasing new machinery to produce DVD cartridges. For the new machinery, the setup cost is $3000; the manufacturing time is 2.5 minutes per cartridge, and the manufacturing cost is $2.60 per cartridge. Assuming that the new machinery is purchased, determine how many units of each subassembly Roedel should manufacture and how many units of each subassembly Roedel should purchase. What is the total manufacturing and purchase cost associated with your recommendation? Do you think the new machinery should be purchased?Explain.
 

Setup Cost ($) Manufacturing Time per Unit (min.) Manufacturing Cost per Unit ($) Purchase Cost Subassembly per Unit ($) Base TV cartridge DVD cartridge TV keypad DVD keypad 1000 1200 1900 1500 1500 0.9 2.2 3.0 0.8 1.0 0.40 2.90 3.15 0.30 0.55 0.65 3.45 3.70 0.50 0.70