CNR Computer is considering moving some of its operations overseas in order to reduce labour costs. In the United Kingdom, its main circuit board costs CNR Computer £75 per unit to produce, while overseas it costs only £65 to produce. Holding costs are based on a 20 percent annual interest rate, and the demand has been a fairly steady 200 units per week. Assume that setup costs are £200 both locally and overseas. Production lead times are one month locally and six months overseas. Approximate the average annual costs of production, holding, and setup at each location, assuming that an optimal solution is employed in each case. Based on this information, which location is preferable?

CNR Computer is considering moving some of its operations overseas in order to reduce labour costs. In the United Kingdom, its main circuit board costs CNR Computer £75 per unit to produce, while overseas it costs only £65 to produce. Holding costs are based on a 20 percent annual interest rate, and the demand has been a fairly steady 200 units per week. Assume that setup costs are £200 both locally and overseas. Production lead times are one month locally and six months overseas. Approximate the average annual costs of production, holding, and setup at each location, assuming that an optimal solution is employed in each case. Based on this information, which location is preferable?

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 11P: Emerald Island Company is considering building a manufacturing plant in County Kerry. Predicting...

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