C11 case 1

C11 case 1 - Case Problem 1 WAGNER FABRICATING COMPANY...

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Case Problem 1 WAGNER FABRICATING COMPANY Managers at Wagner Fabricating Company are reviewing the economic feasibility of manu- facturing a part that it currently purchases from a supplier. Forecasted annual demand for the part is 3200 units. Wagner operates 250 days per year. Wagner's financial analysts established a cost of capital of 14% for the use of funds for investments within the company. In addition, over the past year $600,000 was the average investment in the company's inventory. Accounting information shows that a total of $24,000 was spent on taxes and insurance related to the company's inventory. In addition, an estimated $9000 was lost due to inventory shrinkage, which included damaged goods as well as pilferage. A remaining $15,000 was spent on warehouse overhead, including utility expenses for heating and lighting. An analysis of the purchasing operation shows that approximately two hours are re- quired to process and coordinate an order for the part regardless of the quantity ordered. Purchasing salaries average $28 per hour, including employee benefits. In addition, a de-
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C11 case 1 - Case Problem 1 WAGNER FABRICATING COMPANY...

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