Question

The company expects an annual need for 5,000 switches. If the company makes the product, it will have to utilize factory space currently being leased to another company for $3,700 a month. If the company decides to make the parts, total costs will be:

Answer 1

Based on the cost to produce each unit of the switches and the annual demand, the total costs will be $25,900 more than the cost of purchasing the switches.

What is the cost of producing the switches?

This can be found as:

= Variable cost + set up costs + supervisor's salary + opportunity cost of lost rent

= ( (6 + 5 + 4) x 5,000 units) + 45,500 + 41,000 + (3,700 x 12 months)

= $205,900

If they bought the switches at $36, they would cost:

= 36 x 5,000

= $180,000

Its cheaper to buy by:

= 205,900 - 180,000

= $25,900

Find out more on total costs computation at brainly.com/question/5168855.

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