Solution:
To determine:
1. The S will make the tubes or purchase them.
2. The organisation reasonable average buying price a package.
3. The S should manufacture or purchase the tubes if it is 140,000 tubes per year.
4. The turning point for shopping externally.
1. Declaration indicating cost-benefit analysis of options for making and purchasing:
Particulars Amount (in $) Cost of purchase per box
1.35 Less: savings in variable cost
Direct materials 0.90
Direct labour 0.20
Total savings 1.10
Excess of costs over savings (per box) 0.25
Here, excess expenses in foreign transactions have been found to be $0.25 per package. The client is therefore encouraged to make at home.
2. The highest price for the business S shouldn't be more than $1.10 per package for a client than the vendor's savings.
3. Claim showing the excess cost amount when purchased:
Particulars Amount (in $) Excess cost paid on purchase
30,000 Less: Expense on annual equipment rent
(b) 42,000 Excess expense on make 10,000
If 140,000 tubes are needed the organisation would buy them from outside as $10,000 would be saved.
4. Calculation for break-even point for outside purchase:
It is 180.000 boxes which are the break-even decision point. Thus if the annual demand is above 180,000, the organization will build the cylinders.
