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CHAPTER 1
MAKING ECONOMIC DECISIONS
Short Answer
1.1. Jim Watts, a senior engineer at a major global company, has been working in a foreign
country all of 2016. He was paid in local currency, FC. One FC = 0.3$. The currency fluctuation
in 2016 for each of the four quarters was 6.2, 6.9, 4.2, and 3.8. This contracted salary for the year
was that he would be paid 75,000 in FC per quarter. What was his earnings in $ for 2016?
Answer: 31,507.50
Feedback: Earnings in local currency ($) = [(75,000)*(1.062) + (75,000)*(1.059) +
(75,000)*(1.042) +(75,000)*(1.038)]*[0.1] = 31,507.50
Reference: Case Study 1
Ross Manufacturing in Atlanta is considering outsourcing a component from an offshore
company. The company has collected the following data to make an economic decision.
Cost to make it in-house = $96 per unit.
Annual Demand = 500,000 units
Price quoted by the Asian company = $90 per unit plus a shipping cost of $20,000 per
shipment.
Short Answer
1.2A. Determine the number of shipments per year that the company can require the supplier to
make in order to justify outsourcing.
Answer: 150 Refer to: Case Study 1
Feedback: Annual cost of making in house = 500,000(96) = $48,000,000
Let “X†be the number of deliveries that can be required for breakeven.
90 (500,000) + 20,000 X =48,000,000
X = {48,000,000 -90 (500,000)}/20,000 = 150.
1.2B. In addition to cost consideration, what other factors would weigh in decision making?
Answer: Reputation of overseas vendor, quality of parts, political climate of the country in which
the vendor is from, labor regulations. Refer to: Case Study 1ÂÂ
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