Reference no: EM131033761
HST is an auto part manufacturer located in Michigan. It launches a new project focusing on the production of a certain type of gear used in auto transmission system. The gear needs to be processed by a set of CNC (computer numerical controlled) machines which are already available to HST. Meanwhile, to strengthen the strength of the gear, a special heat treatment process is needed after machining and before packaging. This heat treatment process needs special equipment including a furnace and a set of material handling equipment, which is not available to HST now. HST estimates that it will take approximately 250,000 dollars to install such a heat treatment system and the heat treatment cost will be 6 dollars per gear using such system in house . If the HST subcontract the heat treatment process to a third party company, the price charged for the heat treatment per gear will be 10 dollars.
a) If the demand of the gear is 10,000, should HST make the heat treatment in house or buy the service externally?
b) If the demand of the gear is 90,000, should HST make the heat treatment in house or buy the service externally?
c) What is the minimum demand for the gear that will justify the heat treatment in house for HST?
d) If the minimum demand for the gear that will justify the heat treatment in house for HST is 100,000, what is the cost to install such a heat treatment system if the unit cost of make and unit cost of buy keep the same?
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