A manager of Paris Manufacturing, which produces computer hard drives, is planning to lease a new automated inspection system. The manager believes the new system will be more accurate than the current manual inspection process. The firm has had problems with hard drive defects in the past and the automated system should help catch these defects before the drives are shipped to the final assembly manufacturer. The relevant information follows.
Current manual inspection system
Annual fixed cost = $35,000
Inspection variable cost per unit = $15 per unit
New automated inspection system
Annual fixed cost = $ 165,000
Inspection variable cost per unit = $ 0.55
Suppose annual demand is 8,000 units.
In problem 10, assume the cost factors given have not changed. A marketing representative of NEWSPEC, a firm that specializes in providing manual inspection processes for other firms, approached Paris Manufacturing and offered to inspect parts for $19 each with no fixed cost. It assured Paris Manufacturing that the accuracy and quality of its manual inspection would equal that of the automated inspection system. Demand for the upcoming year is forecast to be 8,000 unit. Should the manufacturer accept the offer ?