Best Answer - Chosen by Asker
1) labor @ $35/pr x 10,000 prs = $350,000
material @ $30/pr x 10, 000prs = $300,000
overhead @ $15/pr x 10,000prs = $150,000
total cost $800.000
ten percent labor/ 350,000 x .10 = $35,000
ten percent overhead/ 150,000 x .10 = $15,000
twenty percent materials/ 300,000 x.20 = $60,000
Total savings $110,000
Bindings @ $10.50/pr x 10,000prs = $105,000
Net savings $5,000
Based on the small percentage that would be saved $.50/pr they should make the bindings.
2)$ 7.50/pr This would save $35,000/ $3.50/pr.
3) First year cost for additional equipment would be $1/pr 10,000/10,000 by year three the additional cost per pair would fall to $.33/pr while sales have tripled. They should invest in the equipment and make the binders.
4) If Minnetonka makes the binders they have direct influence and control over the vendors they deal with, quality of materials, workmanship etc. This eliminates the possibility of sub-contractors who cannot deliver on time and /or deliver inferior goods. By making the binders Minnetonka has more direct control over the quality and cost of the binders and stregthens their ability to meet production goals.
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- Asker's Comment:
- Great the answer i had was going along the same lines but got confused. thank you for the clarification.