Reference no: EM132552928

While at Holbrook, you are told that the manager at Nagambie has spare machine capacity to manufacture ceiling hangers at his factory. Currently Holbrook purchase ceiling hangers for $10 each, but believe it would be more economical for the Nagambie factory to make them. Last month they purchased 1500 ceiling hangers and that is the usual quantity they need. You promise to take the matter up with the Nagambie factory when you return. On your return you mention to the factory manager the request for ceiling hangers, and he replies "not that old chestnut, why if we did those, we would be wasting our time. He can buy them so cheaply". You investigate and find that a welding machine is not being used and the materials would cost $4, and a welder to run it, $50 per hour including on-costs. Direct electricity would be $10 per hour and it takes about 3 minutes to set up the jig and less than two minutes to weld.

Required: Answer all questions below:

Question a) Should Nagambie make the ceiling hangers? Show your calculations.

Question b) Would your answer be the same if the factory was selling the ploughs they made for $750 and would have to forgo the manufacture of five ploughs to fill the order and still have to employ the welder?