Answer:
a. 6000 units
b. The firm should make the product
2. $ 184200
3. $ 197500
Step-by-step explanation:
a. When is someone indifferent towards buying something? In this case when the cost in dollars is the same. The Break Even Point <u><em>(BEP)</em></u> makes sense when the firm is indifferent between purchasing it or manufacturing it because the cost of either one or the other is the same. We know the cost of purchasing it ($25 per unit), now we would have to know the cost of producing it with the given data.
Cost of production = Fixed cost + Variable cost
Fixed cost = Rental + labor
Fixed cost = 39200 + ( 5 Operator * 5 days * 8 hours * $14 per hour)
Fixed cost = 39200 + 2800
Fixed cost = 42000
Variable cost = $18 u u (units)
Cost of production = 42000 + 18u
When does this cost of production is equal to the cost of purchase?
when
Cost of production = Cost of purchase
42000- 18u = 25u
42000 = 25u - 18 u
42000 = 7u
u = 42000/7
u= 6000
b. The firm should make the product because the cost would be cheaper than purchasing it. It costs 184200 dollars to produce 7900 units vs 197500 dollars when buying them.
2. The cost of production is
Cost of production = 42000 + 18u
Cost of production = 42000 + 18(7900)
Cost of production = 42000 + 142200
Cost of production = 184200
3. The cost of purchase is
Cost of purchase = 25u
Cost of purchase = 25(7900)
Cost of purchase = 197500
