Pettibone Traverse Lift in Baraga is trying to determine if they should be making some of their machine frames in-house versus buying them from external suppliers. Engineering has determined internal consumption rates of steel and labor to produce each frame plus a setup cost required to create the frame production line. There is a demand 26, 26, 52, 12 respectively for the Cary-Lift, Speed Swing, Extendo and Traverse model frames. Labor cost is $36 per hour with a $18 per hour overhead rate. There are 1,200 hours of labor available during the planning period. Currently steel cost $1.98 per pound. The following table describes the revenue per machine; outsource cost per frame and consumption for each frame if made internally.
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Cary-Lift
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Speed Swing
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Extendo
|
Traverse
|
|
Selling price
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$36,000
|
$37,500
|
$48,000
|
$51,500
|
| |
|
|
|
|
|
Sub 1 cost each
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$8,900
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$9,200
|
|
|
|
Sub 2 cost each
|
|
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$10,500
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$10,900
|
|
Steel (lbs)
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3600
|
4400
|
5000
|
5400
|
|
Labor (hrs)
|
17
|
21
|
22
|
28
|
|
Setup cost
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$22,100
|
$22,100
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$36,000
|
$36,000
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Create an Excel model to determine which models Pettibone should setup to make internally and buy to maximize revenue.