Suppliers has bid on new line of molded plastic parts

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Reference no: EM131027279

One of your Taiwanese suppliers has bid on a new line of molded plastic parts that is currently being assembled at your plant. The supplier has bid $0.10 per part, given a forecasted demand of 220,000 parts in year 1; 330,000 in year 2; and 490,000 in year 3. Shipping and handling of parts from the supplier’s factory is estimated at $0.02 per unit. Additional inventory handling charges should amount to $0.004 per unit. Finally, administrative costs are estimated at $15 per month. Although your plant is able to continue producing the part, the plant would need to invest in another molding machine, which would cost $13,000. Direct materials can be purchased for $0.06 per unit. Direct labor is estimated at $0.03 per unit plus a 50 percent surcharge for benefits; indirect labor is estimated at $0.014 per unit plus 50 percent benefits. Up-front engineering and design costs will amount to $34,000. Finally, management has insisted that overhead be allocated if the parts are made in-house at a rate of 100 percent of direct labor cost. The firm uses a cost of capital of 13 percent per year. (a) Calculate the NPV. (Round your answer to the nearest dollar amount. Negative amount should be indicated by a minus sign.Omit the "$" sign in your response.)

Reference no: EM131027279

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