OMGT 6333 Teloxy Engineering A-B Answers | All Correct

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TEXLOXY ENGINEERING (A) 1. Using expected value, is it economically better to make or buy the component? Following are the expected value calculations for making the 10,000 components. Table -1 # ... of Unit 10,000 10,000 10,000 10,000 10,000 Material Cost/Unit 40 40 40 40 40 Defective Unit Replacement 120 120 120 120 120 Defect % 0% 10% 20% 30% 40% Probability of occurrence 10% 20% 30% 25% 15% One time charge $100,000 $100,000 $100,000 $100,000 $100,000 Total Material cost 400,000.00 400,000.00 400,000.00 400,000.00 400,000.00 # of defective units 0.00 1,000.00 2,000.00 3,000.00 4,000.00 cost of defective units 0.00 120,000.00 240,000.00 360,000.00 480,000.00 Total cost of 10K unit + Replacements cost for defective units $500,000.00 $620,000.0 0 $740,000.0 0 $860,000.0 0 $980,000.0 0 Probability of cost $50,000.00 $124,000.0 0 $222,000.0 0 $215,000.0 0 $147,000.0 0 Expected Value to make = $758,000.00 Since the cost of purchase is fixed and guaranteed to be defect free, the cost of purchasing 10,000 components is = 10,000 x 72 = $720,000.00. Based on the above calculations it is clear that buying the components is cost effective and will result in the savings of $38,000.00 ($758,000.00 - $720,000.00). 2. Strategically thinking, why might management opt for other than the most economical choice? Strategically thinking, Teloxy management may decide to with higher cost associated with making the component in-house if they believe that there will be demand for this product in near future and manufacturing can bring the cost further down by reducing number of defective components as they gain efficiencies and move in the learning curve. Additionally keeping manufacturing in-house reduces dependencies on external source for creating the finished product which protects Teolxy from component un-availability or future higher purchase cost. Second, Teloxy may also consider to sell the surplus component to other firm and could leverage the infrastructure / expertise (such as machinery, labor, design specifications etc.) to produce other com [Show More]

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