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Chapter 4 Book Problems

# Chapter 4 Book Problems - Chapter 4 Book Problems 1...

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Chapter 4 Book 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. 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

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