Chapter 4
Problem 4.1: Gabriela Manufacturing
(a) Indifference point: Make = Buy
$300,000 + $1.50Q = $120,000 + $2.25Q
Q = ($300,000 - $120,000) / ($2.25 - $1.50)
Q = 240,000 carpet cleaners
(b) Demand (Q) = 300,000 units.
Cost to outsource: $120,000 + ($2.25 X 300,000) = $795,000
Cost to insource: $300,000 + ($1.50 X 300,000) = $750,000
 Insourcing would cost $45,000 less.
Problem 4.4: Downhill Boards
(a) Annual cost to outsource to Fast Finish, Inc.: $230,000 + $0.23(160,000) = $266,800
Annual cost to insource: $125,000 + $0.90(160,000) = $269,000
At 160,000 units, outsourcing is $2,200 less.
(b) Indifference point:
$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:
 Downhill Boards:
o Is finishing snow boards a core competency?
o What impact would outsourcing have on current employees?
 Fast Finish, Inc.(FFI) :
o Is FFI economically stable? Would they be a “good” partner?
o Will Downhill Boards incur additional costs for transportation,
purchasing, logistics, etc.?
o Can FFI meet Downhill Boards’ expectations?
 Quality
 Delivery
 Flexibility