Identify the choice that best answers the question. The fixed cost to your compa
ID: 379650 • Letter: I
Question
Identify the choice that best answers the question. The fixed cost to your company of making a part in-house using is $50,000 per year, and the variable cost is $20 per unit. Your company can buy the part from an outside vendor who has agreed to supply the product for an annual fixed cost S200,000 per year (which your company would need to pay as well as) a variable cost per part of S15 per unit. (If your company chooses to buy the product, it ill not incur any of the fixed costs associated with a make decision.) In which one of the following ranges of output should your company prefer to make the product in-house? (You do not have to show your work for this question) O 0-10,000 units per year 30,001 or more units per year 10,001 or more units per year 0-30,000 units per yearExplanation / Answer
Let the required quantity = N
Total cost of a product
= Fixed cost + variable cost / unit x N units
Thus Total cost of producing N items in house
= $50,000 + 20.N
Total cost of buying from vendor
= $200,000 + $15.N
The company will decide to make the product in house only if total cost of making in house is lss than total cost of buying from vendor.
That means ,
Total cost of producing N items in house < Total cost of buying from vendor
Or, 50,000 + 20.N < 200,000 + 15,N
Or, 5.N < 150,000
Or, N < 30,000
Therefore, company will make it in house for quantity being 0 – 30,000 units
ANSWER : 0 – 30,000 UNITS PER YEAR
ANSWER : 0 – 30,000 UNITS PER YEAR