Discussion Response (150 words each)

Discussion - 5

Question 1:

Considering the expected value of repair costs and the cost of repairing components with the highest probability of defects, the calculations below display that manufacturing the component is more expensive than purchasing it which saves them additional money.

 Number of units =

((0/100) * (10/100) + (10/100) * (20/100) + (20/100) * (30/100) + (30/100) * (25/100) + (40/100) + (15/100)) * (10, 000) = 0.215 * 10000= 2150 units

Estimated cost of Repairing = 2150 * 120 = $258, 000

Cost (acquirement and getting) 10,000 fragments is = 10,000 x 72 = $720,000.00.

Cost (raw materials) = units * cost per unit = 10, 000 * 40= $400, 000

Cost of raw material/component = $40

Total cost incurred for production = $258, 000 + $400, 000 + 100, 000= $758, 000

After comparing manufacturing and purchasing, it is economically better to manufacture the product rather than purchasing (Siqueira, 1999).

2. Strategically thinking, why might management opt for other than the most economical choice?

Management knows that cost of purchasing is lesser than the manufacturing, still the management went for the manufacture option because they can establish in the market. This way the management will have its own manufacturing team rather than depending on the manufacturer. There is always a chance that a manufacturer will still have control over the pricing, and they can increase any time they want it which in turn makes management depend on them. So, the management took the option to manufacture rather than purchase from the vendor (Kerzner, 2017).

Reference

Siqueira, I. (1999). Automated Cost Estimating System Using Neural Networks. Project Management Journal, 30(1), 11.. Retrieved from http://0-eds.a.ebscohost.com.library.acaweb.org/eds/pdfviewer/pdfviewer?vid=4&sid=b4172523-77b4-4a10-bb99-c9d2aa97bf69%40sessionmgr4008

Kerzner, H. (2017). Project management: a systems approach to planning, scheduling, and controlling. John Wiley & Sons.