Operations Management: An Integrated Approach, 5th Edition

Problems

1. Gabriela Manufacturing must decide whether to insource or outsource a new toxic-free miracle carpet cleaner that works with its Miracle Carpet Cleaning Machine. If it decides to insource the product, the process would incur $300,000 of annual fixed costs and $1.50 per unit of variable costs. If it is outsourced, a supplier has offered to make it for an annual fixed cost of $120,000 and a variable cost of $2.25 per unit in variable costs.

• (a) Given these two alternatives, determine the indifference point (where total costs are equal).
• (b) If the expected demand for the new miracle cleaner is 300,000 units, what would you recommend that Gabriela Manufacturing do?

2. Gabriela Manufacturing was able to find a new supplier that would provide the item for $1.80 per unit with an annual fixed cost of $200,000. Should Gabriela Manufacturing insource or outsource the item?

3. Downhill Boards (DB), a producer of snow boards, is evaluating a new process for applying the finish to its snow boards. Durable Finish Company (DFC) has offered to apply the finish for $170,000 in fixed costs and a unit variable cost of $0.65. Downhill Boards currently incurs a fixed annual cost of $125,000 and has a variable cost of $0.90 per unit. Annual demand for the snow boards is 160,000.

• (a) Calculate the annual cost of the current process used at Downhill Boards.
• (b) Calculate the annual cost if Durable Finish Company applies the finish.
• (c) Find the indifference point for these two alternatives. ...