Nermeen Ahmed Nabil Hassan

900160425
Case Study 2 Make versus Buy case
Questions
1. Based on this data, is it economical for ABC Ltd.to go for buying
the product from market or manufacturing in house.

Make:

Year 1 2 3 4 5

m
er as
Sales
300000 500000 700000

co
quantity 900000 1000000

eH w
per year

o.
Variable
Costs rs e
ou urc
Material 14 14x1.1= 15.4x1.1= 16.94x1.1= 18.634x1.1
cost per 15.4 16.94 18.634 =
o

unit 20.4974
aC s

Workers 4 4-(4x10%)= 3.6 3.6x1.1= 3.96x 1.1=

vi y re

wages 3.6 3.96 4.356

per unit
Power 2 2x1.1= 2.2x1.1= 2.42x1.1= 2.662x 1.1=
ed d

and fuel 2.2 2.42 2.662 2.9282

ar stu

cost per
unit
Indirect 4/2= 3.6/2= 3.6/2= 3.96/2= 4.356/2=
is

Labor 2 1.8 1.8 1.98 2.178

Total 22 23 24.76 27.236 29.9596
Th

variable
cost per
unit
sh

Total 22x 23x 24.76x 27.236x 29.9596x

variable 300000= 500000= 700000= 900000= 1000000=
cost per 6600000 11500000 17332000 24512400 29959600
year

This study source was downloaded by 100000763455047 from CourseHero.com on 09-17-2021 23:39:51 GMT -05:00

https://www.coursehero.com/file/48793394/case2-opmg-2docx/
 Fixed
Costs:
Cost of 5000000/5 5000000/5= 5000000/5 5000000/5 5000000/5=
machine = 1000000 = = 1000000
per year 1000000 1000000 1000000
Salary 5000x12= 60000x1.1= 66000x1.1= 72600x1.1= 79860
per year 60000 66000 72600 79860 x1.1=
87846

Total 1060000 1066000 1072600 1079860 1087846

fixed
costs per
year

m
Total cot 7660000 12566000 18404600 25592260 31047446

er as
per year

co
eH w
Thus, the total cost for the 5 years if we make the product is=

o.
7660000 +12566000 + 18404600 +25592260 +31047446 = 95270306
rs e
ou urc
Buy:
o

Year 1 2 3 4 5
aC s

Sales
vi y re

quantity 300000 500000 700000 900000 1000000

per year
Transport 2 2+0.2= 2.2 2.2+0.2= 2.4+0.2= 2.6+0.2= 2.8
ed d

cost per 2.4 2.6

ar stu

unit
Compone 20 20 20x1.1= 22x1.1= 24.2x1.1= 26.62
nt cost 22 24.2
is

Inventory 20x5%= 1 20x5%= 1 22x5%=1. 24.2X 26.62 X 5%=

Th

cost(stora 1 5%= 1.21 1.331

ge cost)
Total 23 23.2 25.5 28.01 30.751
sh

vc/unit
Total cost 23x 23.2x 25.5x 28.01x 30.751x1000000=
per year 300000 500000 700000 = 900000= 30751000
=6900000 =11600000 17850000 25209000

This study source was downloaded by 100000763455047 from CourseHero.com on 09-17-2021 23:39:51 GMT -05:00

https://www.coursehero.com/file/48793394/case2-opmg-2docx/
 Thus, the total cost for the 5 years if we bought the product will be=
6900000+11600000+ 17850000+ 25209000+ 30751000= 92310000

Final decision:

Therefore, we should buy the product from outside as it has lower total cost in the
5 years by 2960306 (95270306-92310000) than if we manufactured it.

2. What other factors should ABC Ltd. look at for making this
decision?

m
er as
In order to make this decision we should evaluate other factors such as

co
eH w
 The available capacity of the company taking into consideration that the

o.
rs e
land prices in the area have more than doubled in the last 3 years and still the
ou urc
land is available with great difficulty.

 The production control and quality considerations where they have been
o

facing a problem of quality complaints which have gone up from average 0.2
aC s

% in previous 2 years to 0.5 % this year.

vi y re

 expertise and efficiency of workers where the workers have been spending
a lot of idle time in tea breaks and talking to each other where this time can
ed d

be used efficiently.
ar stu

 Sufficiency of the workers and the availability of manpower where they

already have a problem of insufficient workers which makes them take
is

advantage of the situation of being not efficient enough in using their time.
Th

 Other costs such as the overtime costs that have increased 3 times and the
tax expenses that will be incurred when buying the product.
sh

 Risks and benefits where they should outweigh both to get the least risk
and the most potential benefits…one of the risks that might be taken into
consideration is that if they outsource the outside agency will always charge
more and there might be problems in the deliveries that will arise.

This study source was downloaded by 100000763455047 from CourseHero.com on 09-17-2021 23:39:51 GMT -05:00

https://www.coursehero.com/file/48793394/case2-opmg-2docx/
  Sustainability of issues on the long run

 The economic conditions

m
er as
co
eH w
o.
rs e
ou urc
o
aC s
vi y re
ed d
ar stu
is
Th
sh

This study source was downloaded by 100000763455047 from CourseHero.com on 09-17-2021 23:39:51 GMT -05:00

https://www.coursehero.com/file/48793394/case2-opmg-2docx/
Powered by TCPDF (www.tcpdf.org)