BUS 515 Problems Chapter 4 Week 3 – Perfect Solution

BUS 515 Problems Chapter 4 Week 3 – Perfect Solution

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BUS 515 Week 3 Chapter 4 Problems

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?

4. Fast Finish, Inc. (FFI) has made a technological breakthrough

in snow board finish application. FFI will apply the finish for $0.23

per unit in variable costs plus a fixed annual cost of $230,000. Use

the cost and demand information given in Problem 3 for Downhill

Boards to evaluate this proposal.

(a) What will it cost Downhill Boards to outsource the finishing

process?

(b) At what demand level does it make sense economically to

outsource the finishing process?

(c) What additional factors should be considered when making

this outsourcing decision?

6. Cal’s Carpentry is considering outsourcing its accounts receivable

function. Currently, Cal employs two full-time clerks

and one part-time clerk to manage accounts receivable. Each

full-time clerk has an annual salary of $36,000 plus fringe benefits

costing 30 percent of their salary. The part-time clerk makes

$18,000 per year but has no fringe benefits. Total salary plus

fringe cost is $111,600. Cal estimates that each account receivable

incurs a $10 variable cost. The Small Business Accounts Receivables

Group (SBARG) specializes in handling accounts

receivable for small- to medium-size companies. Doris Roberts

from SBARG has offered to do the accounts receivable for Cal’s

Carpentry at a fixed cost of $75,000 per year plus $30 per account

receivable. Next year, Cal expects to have 2000 accounts

receivable.

(a) Calculate the cost for Cal’s Carpentry to continue doing

accounts receivable in-house.

(b) Calculate the cost for Cal’s Carpentry to use SBARG to

handle the accounts receivable.

(c) If the fixed annual cost offered by SBARG is nonnegotiable

but it is willing to negotiate the variable cost, what

variable cost from SBARG would make Cal indifferent to

the two options?

(d) What other alternatives might Cal consider in terms of

his current staffing for accounts receivable?

(e) What additional criteria should Cal consider before outsourcing

the accounts receivable?