Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 48

Samsung Electronics is trying to reduce supply chain risk by making more responsible make-buy decisions through improved cost estimation. A high-use component (expected usage is 5000 units per year) can be purchased for $25 per unit with delivery promised within a week. Alternatively, Samsung can make the component in-house and have it readily available at a cost of $5 per unit, if equipment costing $150,000 is purchased. Labor and other operating costs are estimated to be $35,000 per year over the study period of 5 years. Salvage is estimated at 10% of first cost and i =12% per year. Neglect the element of availability
a) to determine the breakeven quantity and b) to recommend making or buying at the expected usage level.