Question

Suppose that a manufacturer can produce a part for ​$8.00 with a fixed cost of ​$6 comma 000. ​Alternately, the manufacturer could contract with a supplier in Asia to purchase the part at a cost of ​$10.00​, which includes transportation. a. If the anticipated production volume is 1,300 ​units, compute the total cost of manufacturing and the total cost of outsourcing. b. What is the best​ decision?

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

A manufacturer can produce a part for ​$8.00 with a fixed cost of ​$6,000. ​

A supplier in Asia offers the part for ​$10.00​, which includes transportation.

The anticipated production volume is 1,300 ​units.

First, we need to calculate the total cost of making the part in-house. We will calculate based on two situations:

Fixed costs are avoidable

Total cost= variable cost + fixed costs= 8*1,300 + 6,000= 16,400

Fixed costs are unavoidable:

Total cost= total variable cost= 8*1,300= $10,400

Now, we calculate the total cost of purchasing:

Purchase= 10*1,300= $13,000

Based on this information, the purchase is more convenient if at least $3,400 of the fixed costs are avoidable.