Make or Buy Decision

Example 13.1 Page 168

In [1]:
#initiation of variable
material=300.0;#in Rs.
labour=250.0;#in Rs.
overhead=100.0;#in Rs.

#calculation
VC=material+labour+overhead;#in Rs.
demand=5000.0;#in units
TVC=demand*VC;#in Rs.
FC=1000000;#in Rs.
TC=FC+TVC;#in Rs.

#result
print "Total cost in Rs. : ",round(TC,3);

#Cost to buy :
Pcost=900*demand;#in Rs.
FC=1000000.0;#in Rs.
TC=FC+Pcost;#in Rs.

#result
print "Total cost in Rs. : ",round(TC,3);
print "The cost of making fixtures is less than the cost of buying fixtures from outside. Therefore, the organisation should make the fixtures."

Total cost in Rs. :  4250000.0
Total cost in Rs. :  5500000.0
The cost of making fixtures is less than the cost of buying fixtures from outside. Therefore, the organisation should make the fixtures.

Example 13.2 Page 171

In [2]:
#initiation of variable
from math import sqrt
Pbuy=8.0;#in Rs/unit
D=2000.0;#in units/year
Co=120.0;#in Rs./order
Cc=1.60;#in Rs./units/year

#calculation
Q1=sqrt(2*Co*D/Cc);#in units
TC=D*Pbuy+D*Co/Q1+Q1*Cc/2;#in Rs.
print "Total cost of buying in Rs. : ",round(TC,3)

#Make Option :
Pmake=5.0;#in Rs/unit
Co=60.0;#in Rs./setup
Cc=1.0;#in Re1/units/year
r=2000.0;#in units/year
k=8000.0;#in units/year

#calculation
Q2=sqrt(2*Co*r/(Cc*(1-r/k)));#in units
TC=D*Pmake+D*Co/Q2+Q2*Cc*(k-r)/(2*k);#in Rs.

#result
print "Total cost of making in Rs. : ",round(TC,3)
print"The cost of making is less than the cost of buying . Therefore, the firm should go in for making option.";

Total cost of buying in Rs. :  16876.356
Total cost of making in Rs. :  10424.264
The cost of making is less than the cost of buying . Therefore, the firm should go in for making option.

Example 13.3 Page 173

In [3]:
#initiation of variable
SP=500.0;#in Rs.
VC=300.0;#in Rs.
FC=400000.0;#in RS.

#calculation
BEP=FC/(SP-VC);#in units

#results
print "BEP in units : ",round(BEP,3);
print"Since the demand(1500units) is less than the break even quantity, the company should buy the cabinets for its TV production."

BEP in units :  2000.0
Since the demand(1500units) is less than the break even quantity, the company should buy the cabinets for its TV production.

Example 13.4 Page 173

In [4]:
#initiation of variable
volume=8000;#in units
#Process A :
FC=500000.0;#in RS.
VC=175.0;#in Rs.

#calculation
AC=FC+VC*volume;#in Rs.

#result
print "Annual Cost of Process A in Rs. :",round(AC,3);

#Process B :
FC=600000.0;#in RS.
VC=150;#in Rs.

#calculation
AC=FC+VC*volume;#in Rs.

#result
print "Annual Cost of Process A in Rs. :",round(AC,3);

#Buy option:
Pprice=125.0;#in RS./Unit
VC=175.0;#in Rs.
AC=Pprice*volume;#in Rs

#result.
print "Annual Cost of Buy in Rs. :",round(AC,3);
print"Since the annual cost of buy option is the minimum among all the alternatives, the company should buy the product."

Annual Cost of Process A in Rs. : 1900000.0
Annual Cost of Process A in Rs. : 1800000.0
Annual Cost of Buy in Rs. : 1000000.0
Since the annual cost of buy option is the minimum among all the alternatives, the company should buy the product.