Question

1.      You are tasked with the decision of purchasing a product or making the product in house. Demand for the product is 10,000 units per week. Your plant can produce 20,000 units per week and incurs costs of $19.95 per unit and $400 per setup. Holding cost in either situation is 0.5% of unit cost per week and both the supplier and your plant operate 45 weeks out of the year. The supplier charges $250 per order, sells in batches of 250 units and offers the following quantity discounts:

Cost per unit	Lower Quantity	Upper Quantity
$20.00	0	5,000
$19.98	5,000	7,500
$19.96	7,500	10,000
$19.94	10,000

a.       Solely looking at buying using the quantity discounts, how much would you order, what cost per unit would you buy at, and what is the Total Annual Cost associated with that quantity?

b.      When comparing buying the product at the cost per unit chosen in part a to making the product in-house, which would you choose: Buy or Make and why?

please show your calculations in Excel.

Answer 1