CNR Computer is considering moving some of its operations overseas in order to reduce labour costs. In the United Kingdom, its main circuit board costs CNR Computer £75 per unit to produce, while overseas it costs only £65 to produce. Holding costs are based on a 20 percent annual interest rate, and the demand has been a fairly steady 200 units per week. Assume that setup costs are £200 both locally and overseas. Production lead times are one month locally and six months overseas. Approximate the average annual costs of production, holding, and setup at each location, assuming that an optimal solution is employed in each case. Based on this information, which location is preferable?
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CNR Computer is considering moving some of its operations overseas in order to reduce labour costs. In the United Kingdom, its main circuit board costs CNR Computer £75 per unit to produce, while overseas it costs only £65 to produce. Holding costs are based on a 20 percent annual interest rate, and the demand has been a fairly steady 200 units per week. Assume that setup costs are £200 both locally and overseas. Production lead times are one month locally and six months overseas. Approximate the average annual costs of production, holding, and setup at each location, assuming that an optimal solution is employed in each case. Based on this information, which location is preferable?
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- A bicycle manufacturer currently produces 360,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.10 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.50 per chain. The necessary machinery would cost $268,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $56,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $20,100.If the company pays tax at a rate of 20% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…Stanley's Candies is considering building a new plant in Europe. It predicts sales at the new plant to be 44,000 units at $4/unit. Below is a listing of estimated expenses: Category Total Annual Expenses % of Annual Expense that are Fixed Materials $20,000 20 % Labor $20,000 10% Overhead $55,000 40 % Marketing/Admin $20,000 60% A European firm was contracted to sell the product and will receive a commission of 20% of the sales price. No U.S. home office expenses will be allocated to the new facility. (Round intermediary dollar calculations to the nearest whole dollar and round percentages to one-tenth percent.) A. 37.4%. B. 160.8%. C. 22.7%. D. 39.2%.Race One Motors is an Indonesian car manufacturer. At its largest manufacturing facility, in Jakarta, thecompany produces subcomponents at a rate of 300 per day,and it uses these subcomponents at a rate of 12,500 per year(of 250 working days). Holding costs are $2 per item per year,and ordering (setup) costs are $30 per order.a) What is the economic production quantity?b) How many production runs per year will be made?c) What will be the maximum inventory level?d) What percentage of time will the facility be producingcomponents?e) What is the annual cost of ordering and holding inventory?
- A bicycle manufacturer currently produces 396,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.50 per chain. The necessary machinery would cost $295,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $54,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $22,125. If the company pays tax at a rate of 20% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce…A bicycle manufacturer currently produces 282,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.80 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $225,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $32,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $16,875. If the company pays tax at a rate of 20% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…ABC Company (ABC) currently produces 6,000 units of M1 (a component uses in many electric appliances) per year under normal capacity and sells M1 at $66 per unit. The company is considering the possibility to buy a similar component from an outside supplier. If ABC accepts the supplier’s offer, all variable manufacturing costs will be eliminated, but 60% of the fixed manufacturing overhead will have to be absorbed by other products. The released factory equipment could be used to produce a net income of $66,000. The cost to produce M1 is as follows.Direct materials $105,000 Direct labor $45,000Total overhead $90,000. The total overhead costs include variable handling costs of $5 per unit. The remainder of the overhead costs consists of 10% variable costs and 90% fixed costs. A very good foreign manufacturer, 3Z Company (3Z) has offered to sell the component at $36 per unit, plus $0.5 shipping cost per unit. GQ Company (GQ), a new local manufacturer, has alsooffered to…
- A bicycle manufacturer currently produces 247,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of < $2.20 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.40 per chain. The necessary machinery would cost $277,000 and would be obsolete after 10 years. This investment could be depreciated to zero for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require $26,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the 10 years. Expected proceeds from scrapping the machinery after 10 years are $20,775, If the company pays tax at a rate of 28% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…A bicycle manufacturer currently produces 233,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.40 per chain. The necessary machinery would cost $224,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $58,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $16,800. If the company pays tax at a rate of 20% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…A bicycle manufacturer currently produces 395,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.40 per chain. The necessary machinery would cost $231,000 and would be obsolete after 10 years. This investment could be depreciated to zero for tax purposes using a 10-year straight-line depreciation schedule. The plant manager estimates that the operation would require $42,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the 10 years. Expected proceeds from scrapping the machinery after 10 years are $17,325. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the…