Montoya-Weiss Engineering (MWE) is a Dallas engineering firm that produces customized instrumentation for the aerospace industry. MWE is thinking about outsourcing the production of a particular component to a Fort Worth manufacturer. The Fort Worth manufacturer has offered to make the components for a price of $25 each, based on an annual volume of 32,000.

However, additional costs are associated with maintaining this supplier relationship. MWE management has developed the following cost figures:

In addition to cost, MWE management has identified two other dimensions to consider:
quality (specifically, the percent of defect-free items) and on-time delivery. MWE management has established importance weights of 0.2, 0.5, and 0.3 for cost, quality, and on-time delivery, respectively. Finally, purchasing experts at MWE have rated the performance of the current assembly operation and the Fort Worth manufacturer with regard to these three dimensions.
Their ratings (1 “poor” to 5 “excellent”) are as follows:

Calculate the total cost of each option, as well as the overall preference score.

Transcribed Image Text:

CURRENT MANUFACTURING OPERATIONS Fixed Costs: Plant and overhead, $800,000 per year Variable Costs: Labor, $8.50 per unit Materials, $5.00 per unit FORT WORTH MANUFACTURER Price per component: $25 Other Costs: Administrative costs, $50,000 per year Inspection costs, $65,000 per year Shipping cost, $1.50 per unit