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    Make or Buy analysis

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    Lawson Industries (LI) makes portable CD Players. A new model has been developed that requires a new design of a display unit. LI is contemplating whether to buy the units from a supplier, to produce the units while using a manual assembly system, or to produce the units while using an automated assembly system.

    Buy Manual Automated

    Annual Volume 100,000 100,000 100,000

    Fixed cost per year --- $300,000 $500,000

    Variable cost per unit $10 $8 $7

    a. What should LI do - buy, produce with manual assembly, or produce with automated assembly?

    b. Would your answer change if 150,000 units were needed annually?

    c. What other considerations would be important in this decision?

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    Solution Preview

    Here it should buy as the total cost of the buying (100000*10=10 lakh) is less than the manufacturing( Assuming full capacity is one lakh) : manual (300000+8*100000=1100000) and automated it is (500000+7*100000=12lakh)
    If 150000 units are required then the:
    it will be ...

    Solution Summary

    This provides Make or Buy analysis