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