Question

The Albany Engineering Co Ltd has the option to make or buy one of its component parts. The annual requirement is 8,500 units. A supplier is able to supply the parts for $13 per piece. The firm estimates that it costs $3,700 to prepare the contract with the supplier. To make the part in-house, the firm must invest $23,500 in capital equipment and estimates that the parts cost $10 per piece. Complete the table below.
Important! Enter all responses as whole numbers with a comma as needed (#,###).

Should the firm make or buy? (Enter Make or Buy)

What is the break-even quantity? (Enter as ##,### or #,###)

What is the total cost at the break-even point? (Enter as ###,### or ##,###)

$

Assume instead that the annual requirement is 5,500; calculate the total cost for both options and the cost savings for choosing the cheaper option.

Total cost for making at 5,500 units: (Enter as ###,### or ##,###)

$

Total cost for buying at 5,500 units: (Enter as ###,### or ##,###)

$

Cost savings from choosing the cheaper option: (Enter as ##,### or #,###)

$

Answer 1

SOLUTION:- costs if firm make the product

capital equipment=23500

cost per units =10=8500*10=85000

total costs =108500

costs if firm buy the product:-

8500*13=110500

it is recommended to make the product because it gives the benefit of 2000 over the proposal of buying.

break even quantity:-

fixed cost/ contribution per unit

=23500/13-10

7833 units

total cost at break even point = fixed costs = 23500

variable costs =7833*10= 78330

total costs at break even point =101830