City Machine Inc. currently makes a part for an equipment at a cost of $20 /...
City Machine Inc. currently makes a part for an equipment at a cost of $20 / unit. The annual fixed cost for this equipment is $50,000. The company found an outside supplier who will make the part for $15 / unit if the company will pay the supplier’s annual fixed costs of $200,000 / year
| Alternative | Fixed Cost | Variable Cost |
| Buy | $200,000 Per Year | $15 per unit |
| Make | $50,000 Per Year | $20 per unit |
Compute cost to buy & cost to make
Homework Answers
INDIFFERENCE POINT = (FIXED COST A - FIXED COST B) / (VARIABLE COST B - VARIABLE COST A)
FIXED COST A = 200000
VARIABLE COST A = 15
FIXED COST B = 50000
VARIABLE COST B = 20
INDIFFERENCE POINT = (200000 - 50000) / (20 - 15) = 30000
BELOW 30000 UNITS WE WILL PREFER TO MAKE BECAUSE OF LOWER FIXED
COST BUT ABOVE 30000 UNITS WE WILL PREFER TO BUY THE UNITS BECAUSE
OF LOWER VARIABLE COST.
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City Machine Inc. currently makes a part for an equipment at a
cost of $20 /...
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switches. The company is currently manufacturing all of its own
component parts. An outside supplier has offered to sell a switch
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Current-Control has gathered the following information relating to
its own cost of producing the switch internally:
Per
Unit
12,000 Units
per Year
Direct materials
$ 12
$144,000
Direct labour
10
120,000
Variable manufacturing overhead
3
36,000
Fixed manufacturing overhead, traceable
8*
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