Question

Vista Company manufactures electronic equipment. In 2018, it purchased from an outside supplier the special switches used in each of its products. The supplier charged Vista $2.4 per switch. As an alternative, Vista's CEO considered purchasing either machine A or machine B so the company could manufacture its own switches. The CEO decided at the beginning of 2019 to purchase machine A based on the following data: Annual fixed cost (depreciation) Variable cost per switch Machine A $155.000 0.85 Machine B $208, see 0.se Required: 1. Assume that machine A has not yet been purchased. What is the annual volume that would make the company indifferent between the two decision alternatives (.e., purchasing and then using machine A to make the switches versus purchasing the switches from the outside vendor)? 2. Assume that machine A has already been purchased. Is it preferable to use machine A to make the switches or to purchase the switches from the external supplier? 3. Assume that machine A has already been purchased. At what annual volume level should Vista consider replacing machine A with machine B? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Assume that machine A has not yet been purchased. What is the annual volume that would make the company indifferent between the two decision alternatives (le, purchasing and then using machine A to make the switches versus purchasing the switches from the outside vendor)? (Do not round Intermediate calculations. Round your final answer up to the nearest whole number.) Indifference point unite Required 2 >

Answer 1

- Solution Data available Pooticulars Fixed ost Variable cost Mochine A 1,55,000 0.85 Mochine R 2,08,000 0.50 ($ per switch ($ Purchase price per switch = $2.4 (9 Let the annual volume at which the purchasing machine A and purchasing switches from rendon be "Q". Total cost of 'Q"volume of switches in : (i) Machine A = 155000 8+0.85Q | (11) Purchase from vender : 2.49 | Hence, Indifference point = 15500V + 0.859 = 2.40 _ 2.4 g - 0.859 = 155000 __ 1.55 Q = 155000 = 1500001 1555 Hence, at a volume both the options are switches, of 100000 indifferent. (5) | In case machine A is already purchase, it I is preferable to use machine A as it will I save the variable cost of ($2.4 80.85 = $1.55 per switch. - Since the depreciation of machine A is fixed, it makes no rome stongpurchase external render. Camscanner

However, if the annual volume is than 100,000 switches , it is preferable to machine and purch are switches from vendors. less remove external Let the annual volume Toral cost of "Q" Ico Machine A = 15500D be "8". volume of +0.859 switches in a i Machine B= 208000 + 0.5Q Hence, Indifference point will be: 155000 + 0.85 Q = 208000+ 0.54 0.85Q - 0.56 = 2045oo - 155ooo 0.3560 = 53000 9 = 1,51,429 - Hence, 151429 machine at the switches H by volume of more than it is adui nable to machine 3. replac Spanned with - Scanner