Reference no: EM131861696

1. Altrix makes a line of high tech tools that are used to repair medical devices. The company has been asked to produce a new tool that would require a metal spring they do not currently make. Before they accept the contract for the new tools, managers must decide whether to make the spring in a part of the factory that is currently idle, or buy it pre-made from another company. The contract is for 8,000 tools, and each tool needs a spring. The plant manager estimates the cost of making 8000 springs is as follows:
2. Materials 220,000
3. Hourly labor 100,000*
4. *Altrix would use current staff. This figure represents overtime pay.
5. Production of the spring would also require a fixed investment of $36,000 to re-tool the current factory machinery and train staff. The new spring will not be sold again as the company ordering the tool plans to completely redesign its machinery next year. If Altrix does not make the spring in house, it could lease this part of the factory for $56,000 to a nearby manufacturing company. If they do not make the springs themselves, they can buy them from an outside vendor for $50 each.
6. Assuming Altrix wants to fill the order, should they make the new springs or buy them? Explain your answer and show all calculations.