Nama : AHMAD FAKHIHAN A

NIM : 16502241002

CHAPTER 4

Downhill Boards (DB), a producer of snow boards, is evaluating a new process for applying the
finish to its snow boards. Durable Finish Company (DFC) has offered to apply the finish for
$170,000 in fixed costs and a unit variable cost of $0.65. Downhill Boards currently incurs a
fixed annual cost of $125,000 and has a variable cost of $0.90 per unit. Annual demand for the
snow boards is 160,000.
(a) Calculate the annual cost of the current process used at Downhill Boards.
(b) Calculate the annual cost if Durable Finish Company applies the finish.
(c) Find the indifference point for these two alternatives.
(d) How much of a change in demand is needed to justify out sourcing the process?

(a) Annual cost to insource: $125,000 + $0.90(160,000) = $269,000

(b) Annual cost to durable finish company: $170,000 + $0.65(160,000) = $274,000
(c) Indifferensce point $170,000 + (0.65Q) = $125,000 + (0,9Q)
= 180,000 units
(d) Quantity increase 20,000 units
Percentage increase 13%

Fast Finish, Inc. (FFI) has made a technological breakthrough in snow board finish application.
FFI will apply the finish for $0.23 per unit in variable costs plus a fixed annual cost of $230,000.
Use the cost and demand information given in Problem 3 for Downhill Boards to evaluate this
proposal.
(a) What will it cost Downhill Boards to outsource the finishing process?
(b) At what demand level does it make sense economically to out source the finishing process?
(c) What additional factors should be considered when making this out sourcing decision?

(a) Annual cost to insource: $125,000 + $0.90(160,000) = $269,000

Annual cost to outsource to fast finish: $230,000 + $0.23(160,000) = $266,800
At 160,000 units, outsourcing is $2,200 less.

(b) Indifference point: Total cost of insourcing = total cost of outsourcing

125,000+0.90Q = 230,000 + 0.23Q
Q = 156,717 snow boards

It’s better to outsource if demand is 156, 717 or more; insource if demand is less than 156,717.

(c) Additional factors that need to be considered include the economic stability of FFI, the
technical ability of FFI to produce a quality product, the ability of FFI to “partner”, the
ability of FFI to deliver on time, and the impact of outsourcing on remaining employees.

Faktor tambahan yang perlu dipertimbangkan termasuk stabilitas ekonomi FFI,

kemampuan teknis FFI untuk menghasilkan produk yang berkualitas, kemampuan FFI
untuk "bermitra", kemampuan FFI untuk mengantarkan tepat waktu, dan dampak
outsourcing pada sisa para karyawan.