The question is incomplete. The complete question is as follows,
Hoboken Industries currently manufactures 30,000 units of part MR24 each month for use in production of several of its products. The facilities now used to produce part MR24 have a fixed monthly cost of $150,000 and a capacity to produce 84,000 units per month. If the company were to buy part MR24 from an outside supplier, the facilities would be idle, but its fixed costs would continue at 40 percent of their present amount. The variable production costs of part MR24 are $11 per unit.
If Hoboken Industries is able to obtain part MR24 from an outside supplier at a unit purchase price of $17, what is the monthly usage at which it will be indifferent between purchasing and making part MR24?
Answer:
The monthly usage at which the company will be indifferent between the two options is 15000 units.
Explanation:
Let x be the number of units of MR24
The equation for cost of producing MR24 internally can be written as,
Cost = 150000 + 11x
The equation for cost for the option of buying MR24 externally can be written as,
Cost = (150000 * 0.4) + 17x
Equating both the equations,
150000 + 11x = (150000 * 0.4) + 17x
150000 + 11x = 60000 + 17x
150000 - 60000 = 17x - 11x
90000 = 6x
90000 / 6 = x
x = 15000 units
The monthly usage at which the company will be indifferent between the two options is 15000 units.
