This 7 page paper shows the student how to calculate answers for a fictitious problem involving the Vision Instruments Company. The paper demonstrates the calculation of the different costs for a company when they have the choice to buy in parts or to make them. The cost calculation over three years are undertaken. Following this the figures are then discounted using an NPV calculation and the decision is assessed. The bibliography cites 5 sources.
Name of Research Paper File: TS14_TEvision.rtf
Unformatted Sample Text from the Research Paper:
assumed life of the machines my be four years, but as the manufacturing will change after 2006 this is the correct period to use.
The first stage is to look at the costs of buying in the units requires. We are told that the cost here is ?200 a unit and that
the price is expected to increase by 6% per annum. This can be calculated quiet easily with a 6% increase each year, giving us; Year 2004 2005 2006
Price per unit 200.00 212.00 224.72 No. of units required 20,000 22,000 22,000 Total cost 4,000,000 4,664,000 4,943,840 This can be compared to the actual costs incurred making the
units. These can be looked at on a yearly basis, as seen below. This is shown as a breakdown of the variable and the fixed costs so the student can
adapt them if necessary. Year 2004 2005 2006 Variable costs Case material (per unit) 180 190.8 202.248 Power 0.25 0.26 0.27 Dies 0.10 0.10 0.10
Maintenance 0.25 0.25 0.25 Supplies 0.125 0.125 0.125 Total Variable costs per unit 180.73 191.53 202.99 Total Variable Costs 3,614,500 4,213,715 4,465,741 Fixed costs Rent 15,000 15,450
15,914 Power 1,000 1,030 1,061 Dies 10,000 10,300 10,609 Maintenance 3,000 3,090 3,183 Supplies 1,000 1,030 1,061 Insurance 4,000 4,120 4,244 Wages 83,200 85,696 88,267 Supervision 26,000 26,780 27,583 Total
fixed costs 143,200 147,496 151,921 Total costs 3,757,700 4,361,211 4,617,662 Total cost per unit 188 198 210 In the projections above it has been assumed that costs will increase.
We are told that the case material will increase by 6%, other items that have a specified increase are set at 3%. It is not realistic to assume that there