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A company plans to begin production of a new small appliance. The manager must decide whether to purchase the motor for the appliance from a vendor at $8.75 each or to produce inhouse. In-house production will have an annual fixed cost of $120,000 and a variable cost of $5.25 per unit.
Determine the range of annual quantities for which each of the alternatives will be the best.
Now, assume that the company can use two processes for the inhouse production; one would have an annual fixed cost of $120,000 and a variable cost of $5.25 per unit (Inhouse - Option A), and the other would have an annual fixed cost of $280,000 and a variable cost of $3.5 per unit (Inhouse - Option B). Determine the range of annual quantities for which each of the alternatives (1: Buy, 2: Option A, and 3: Option B) will be the best.
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