Answer:
It is cheaper to buy the component. At this level of production by $40,750.
Explanation:
Giving the following information:
Production= 43,000 units
Variable costs are $2.95 per unit
Avoidable Fixed costs= $73,000 per year
Unavoidable fixed costs= $77,500 per year.
The company is considering buying this component from a supplier for $3.70 per unit.
We need to calculate the cost of producing and buying and choose the best option.
Production:
Total cost= 43,000*2.95 + 73,000= $199,850
Buy:
Total cost= 43,000*3.7= $159,100
It is cheaper to buy the component. At this level of production by $40,750.
