£ £ 2.

5
Materials 127,400
Labor 90,000
Division overhead:
Manager's salary 14,500
Rent 8,200
Depreciation of machinery 27,300
Maintenance of machinery 6,550
Other expenses 28,660
85,210
302,610
Proportion to general administrative overhead 40,950
Total cost of department for year 343,560

Revised numbers

£ £
Materials 326,600 Added an amount for Material X
Labor 225,000
Division overhead:
Manager's salary 36,250
Rent 20,500
Depreciation of machinery 68,250
Maintenance of machinery 16,375
Other expenses 71,650
213,025
764,625
Proportion to general administrative overhead 102,375
Total cost of department for year 867,000
Added an amount for Material X
 Make Make Buy Buy
Maintenance Maintenance Maintenance Maintenance
in-house outsource in-house outsource
£ £ £ £
Contract value:
Containers 0 0 2,843,750 2,843,750
Maintenance 0 853,125 0 853,125
Machinery 0 0 (90,000) (90,000)
Material: 0 0 0 0
Non PFL 1,137,500 1,023,750 113,750 0
PFL 218,000 163,500 (181,300) (217,560)
Material X 0 750 6,750 7,500
Warehouse rental 198,000 198,000 198,000 0
Labour 1,125,000 900,000 225,000 0
Managers salary 181,250 181,250 113,750 0
Other expenses 358,250 210,750 147,500 0
Machinery maintenance 81,875 81,875 0 0
Redundancy 35,000
Pension 67,500

3,299,875 3,613,000 3,377,200 3,499,315

1 4 2 3
Material Working
PFL total cost (A) 455000
Purchase price (B) 2275 per tonne

Total purchased (A/B) 200 tonnes

Annual requirement 200 tonnes/5 = 40 tonnes therefore 200 - 40 - 40 = 120 tonnes left
1. If make and keep maintenance inhouse , will need a total of 200 tonnes of PFL over next 5 years therefore need to buy 80 tonnes of PFL
@2725/tonne
2. If make and outsource maintenance, will need a total of 180 tonnes (36x5) of PFL therefore will need to buy 60 tonnes of PFL
@2725/tonne
3. If buy and keep maintenance inhouse, will need a total of 20 tonnes (4x5) of PFL therefore can sell 100 tonnes @ 1813/tonne
4. If buy and outsource maintenance, can sell entire 120 tonnes of PFL currently held @1813/tonne

5 years
Container Contract 568750 2843750
Maintenance contract 170625 853125
Material - Total 318500
PFL 91000
Materal X

PFL purchase price 2275

PFL disposal 1812.5
PFL current replacement 2725
PFL original purchase price 455000

Total purchased 200 for 5 years

Annual requirement 40

Material X
Currently in stock 75 tonnes
Annual requirement 15 tonnes 540 per ton
Annual cost 8100 This added to material cost

1. If make and keep maintenance inhouse , will need a total of 75 tonnes of Material X over next 5 years therefore no additional purchase
2. If make and outsource maintenance, will need a total of 67.5 tonnes (90%) of Material X therefore will dispose 7.5 tonnes @ 100 per tonne
= $750

3. If buy and keep maintenance inhouse, will need a total of 7.5 tonnes of Material X therefore can dispose 67.5 tonnes at $100 tonnes =
$6,750
4. If buy and outsource maintenance, can sell entire 75 tonnes at $100 = 7500 cost outflow
WORKINGS

Make Make Buy Buy

Maintenance Maintenance Maintenance Maintenance
in-house outsource in-house outsource
PFL
PFL required 200 180 20 0
Instock 120 120 120 120
Required / (excess) 80 60 (100) (120)

Cost / (revenue) 218,000 163,500 (181,300) (217,560)

Make Make Buy Buy

Maintenance Maintenance Maintenance Maintenance
in-house outsource in-house outsource
Material X
PFL required 75 67.5 7.5 0
Instock 75 75 75 75
Required / (excess) 0.0 (7.5) (67.5) (75.0)

Cost / (revenue) 0 750 6,750 7,500

Make Make Buy Buy

Maintenance Maintenance Maintenance Maintenance
in-house outsource in-house outsource
Redundancy No No No Yes
Pension No No No Yes
Labour 100% four fifths one fifth 0%
Managers Yes Yes Foreman No
Machine required Yes Yes No No
 Make Make Buy Buy
Maintenance Maintenane Maintenance Maintenance
in-house outsource in-house outsource
£ £ £ £
Contract value:
Containers - - 2,843,750 2,843,750
Maintenance - 853,125 - 853,125
Machinery - - (90,000) (90,000)
Material: - - - -
Non PFL 1,137,500 1,023,750 113,750 -
PFL 218,000 163,500 (181,300) (217,560)
Material X - 750 6,750 7,500
Warehouse rental 198,000 198,000 198,000 -
Labour 1,125,000 900,000 225,000 -
Managers salary 181,250 181,250 113,750 -
Other expenses 358,250 210,750 147,500 -
Machinery maintenance 81,875 81,875 - -
Redundancy 35,000
Pension 67,500

3,299,875 3,613,000 3,377,200 3,499,315

Immediate inflow (271,300) (307,560)
Net 3,105,900 3,191,755

Annual outflow 659,975 722,600 621,180 638,351

Annuity factor 10% -£2,501,824.50 -£2,739,222.52 -£2,354,760.93 -£2,419,852.53

NPV -£2,501,824.50 -£2,739,222.52 -£2,083,460.93 -£2,112,292.53