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 Summary
This provides Make or Buy analysis
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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 ...
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