Calculate the economic feasibility of make or buy.

Calculate the economic feasibility of make or buy.

Let us consider
again the case study of Problem#1.
Your
manufacturing team informs you that they have found a way to increase the size
of the manufacturing run from 10,000 to 18,000 units, in increments of 2,000
units. However, the set up cost will be
$150,000 and defects will cost the same $120 for removal and repair.

Questions:

1.
Calculate the
economic feasibility of make or buy.

2.
Should the
probability of defects change if we produce 18,000 units as opposed to 10,000
units?

3.
Would you
answer to Question 1 change if Teloxy management believes that follow-on
contracts will be forthcoming? What
would happen if the probability of defects changes to 15 percent, 25 percent,
40 percent, 15 percent, and 5 percent due to learning-curve efficiencies?


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