A Firm Currently Makes a Component, and Requires 30 000

A firm currently makes a component, and requires 30 000 of them for the coming year's production. Another supplier has offered the part at a delivered price of $3 per unit. It would cost $3000 to check purchased units for quality. Product costs per unit for the past year were $2.35 variable and $1 fixed based on 30 000 units. If the component was bought, fixed overhead would be reduced by $6000, the cost of leasing specialised equipment. The space vacated by the equipment can be rented for $4000 for the year. Which of the following statements is the correct quantitative analysis of the make or buy decision?

A) The buy option costs $12 500 more than the make option.
B) The buy option costs $12 500 less than the make option.
C) The buy option costs $10 500 more than the make option.
D) The firm is indifferent between the two options.

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free