Outsource cost per frame and consumption

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Reference no: EM13810371

Pettibone Traverse Lift in Baraga is trying to determine if they should be making some of their machine frames in-house versus buying them from external suppliers. Engineering has determined internal consumption rates of steel and labor to produce each frame plus a setup cost required to create the frame production line. There is a demand 26, 26, 52, 12 respectively for the Cary-Lift, Speed Swing, Extendo and Traverse model frames. Labor cost is $36 per hour with a $18 per hour overhead rate. There are 1,200 hours of labor available during the planning period. Currently steel cost $1.98 per pound. The following table describes the revenue per machine; outsource cost per frame and consumption for each frame if made internally.

	Cary-Lift	Speed Swing	Extendo	Traverse
Selling price	$36,000	$37,500	$48,000	$51,500

Sub 1 cost each	$8,900	$9,200
Sub 2 cost each			$10,500	$10,900
Steel (lbs)	3600	4400	5000	5400
Labor (hrs)	17	21	22	28
Setup cost	$22,100	$22,100	$36,000	$36,000

Create an Excel model to determine which models Pettibone should setup to make internally and buy to maximize revenue.

Reference no: EM13810371

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