Decision-Making Case Using Spreadsheet: Purchasing Analysis
Kayo Computer assembles and sells personal computers. Each computer needs one custom-designed printed circuit board (PCB). Kayo has contracted to buy the PCBs from an outside PCB manufacturer, Apex Manufacturing. The long-term contract stipulates that Kayo pays $200 per board to Apex for up to 2,000 PCBs. If the annual order quantity exceeds 2,000 PCBs, then Apex is obligated to give a discount of $40 per board for the portion beyond 2,000, thus selling them at $160.
Kayo can also buy the same PCBs from another manufacturer, TCI Electronics, that offers a lower price of $120 per PCB but asks a onetime payment of $100,000 as a nonrefundable design and engineering fee. Kayo’s engineers have determined that Kayo may use PCBs from either of the two manufacturers, or from both in any mixture without any manufacturing cost or compatibility problems.
The PCB along with other components are assembled by Kayo into its personal computer. The variable assembly cost of the Kayo personal computer is $450 each with an annual fixed cost of $1,500,000. Kayo sells the assembled computer for $1,000 each. At the moment no one is sure how many Kayo computers the company can sell for the next year. You, as VP of Finance at Kayo Computer, know that this model of Kayo computer will be discontinued after next year and so any one-time fee that might be paid to TCI must be justified based on next year’s sales alone. You will evaluate certain economic and legal issue as part of your financial plan for the next year.
Use Excel to build spreadsheet analysis models that captures the profitability of the Kayo personal computer for next year. It is not allowed to use Solver to solve this problem. You should build your own analysis models in spreadsheet. You will analyze the following scenarios:
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