Question

You are asked to recommend whether a firm should make or purchase product A. The following are data concerning the two options. For the purchase​ option, the firm can buy product A at ​$22 per unit. For the make​ option, the firm can produce product A based on the following cost estimation data. The firm has to pay a weekly rental payment of ​$30 comma 800 for the production facility. With the use of this​ facility, the firm also has to hire five operators to help make product A. Each operator works eight hours per​ day, five days per week at the rate of ​$14 per hour. In other​ words, the rental and labor expenses are fixed costs. The material cost for the make option is ​$15 per unit of product A. a. Find a weekly amount of product A that provides the breakeven point for the firm. The breakeven point in this problem indicates the​ firm's indifference between purchasing or making product A. b. If the firm estimates the sale of product A to be 6 comma 600 units per​ week, should it make or purchase product​ A?

Answer 1

Answer:

Instructions are listed below

Explanation:

Giving the following information:

For the purchase​ option:

Buying price= ​$22 per unit.

For the make​ option:

Weekly rental payment of ​$30,800

The firm also has to hire five operators to help make product A. Each operator works eight hours per​ day, five days per week at the rate of ​$14 per hour.

The material cost for the make option is ​$15 per unit of product A.

A) We need to find the number of units that makes the unitary fixed costs= $7

Weekly rental= 30800

Direct labor= ($14*8 hours*5workes)*5 days= 2800

Total fixed costs= $33,600

Unitary fixed costs= total fixed costs/ Q

7=33600/Q

Q= 4800 units

B) Now Q= 6600

Buy= 6600*22= $145,200

Make= 6600*15 + 33600= $132,600