San Diego State University Operations And Supply Chain Management Assignment Help - Equipment
Question - Bronson Company manufactures a variety of ballpoint pens. The company has just received an offer
from an outside supplier to provide the ink cartridge for the companyâ€™s Zippo pen line, at a price of
$0.48 per dozen cartridges. The company is interested in this offer, since its own production of
artridges is at capacity.
Bronson Company estimates that if the supplierâ€™s offer were accepted, the direct labor and variable
manufacturing overhead costs of the Zippo pen line would be reduced by 10% and the direct
materials cost would be reduced by 20%. Under present operations, Bronson Company manufactures
all of its own pens from start to finish. The Zippo pens are sold through wholesalers at $4 per box.
Each box contains on
e dozen pens. Fixed manufacturing overhead costs charged to the Zippo pen
line total $50,000 each year. (The same equipment and facilities are used to produce several pen
The present cost of producing one dozen Zippo pens (one box) is given below:
Direct materials . . . . . . . . . . . . . . . . . $1.50 Direct labor . . . . . . . . . . . . . . . . . . . . 1.00 Manufacturing
overhead . . . . . . . . . . 0.80* Total cost . . . . . . . . . . . . . . . . . . . . . . $3.30 *Includes both variable and
fixed manufacturing overhead, based on production of 100,000 boxes of pens each year.
1. Should Bronson Company accept the outside supplierâ€™s offer? Show computations.
2. W hat is the maximum price that Bronson Company should be willing to pay the outside supplier per
dozen cartridges? Explain.
3. Due to the bankruptcy of a competitor, Bronson Company expects to sell 150,000 boxes of Zippo
pens next year. As stated above, the company presently has enough capacity to produce the
cartridges for only 100,000 boxes of Zippo pens annually. By incurring $30,000 in added fixed cost
each year, the company could expand its production of cartridges to satisfy the anticipated demand
for Zippo pens. The variable cost per unit to produce the additional cartridges would be the same as
at present. Under these circumstances, how many boxes of cartridges should be purchased from the
outside supplier and how many should be made by Bronson? Show computations to support your
4. W hat qualitative factors should Bronson Company consider in determining whether it should make
or buy the ink cartridges? ...Read Less
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