Reference no: EM132507746
The Neptune Car Company is considering opening a new manufacturing plant to produce a two-passenger electric mini. The objective is to make 10,000 cars annually at the plant. The size of the plant depends on which auto parts Neptune decides to outsource. If all parts are made in-house, the fixed costs are expected to be $100 million and the variable costs are expected to be $4,000 per car. The company is considering the outsourcing of the engine, the drive shaft, and the dashboard. If each of the parts is outsourced, Neptune estimates the following reduction in fixed costs and variable costs per car. It has also obtained from an external supplier the following purchase price for each part:
part reduction in fixed costs reduction in variable costs/unit purchase price
engine $20,000,000 $100 $1200
drive shaft 5,000,000 200 400
dashboard 6,000,000 300 1000
Required
Question a. Which of the different parts should be outsourced, based on the costs and prices?
Question b. What other factors should be considered in making the outsourcing decision?
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