What is better?

Buying 5,000 units from a supplier for $115,000 or trying to make the product in house. Your manufacturing group can produce 5,000 units with a one time charge of $3,000 for setting up the product line. The material and labor cost will be $12 per unit (in house). Defects are calculated to be:

Defect %: 0, 25, 35, 40

Probability of occurrence %: 10, 60, 20, 10

Replacement cost for a defective unit is $30 per defective unit.

Calculate the following:

Total material costs

Expected number of defects at each defect %

Material costs plus costs of replacing defective units at each %

probability of cost for the defect % levels

expected value for making components in house.

Use this to answer if the product should be purchased from the supplier or made in house.