Reference no: EM132638604

Question 1: What level of volume is necessary to justify making the part?

Flounder Company is currently purchasing a component for $13 but is considering making the part internally. The plant engineer has suggested two alternatives. The first alternative would increase fixed costs by $12,200 per month and incur variable costs of $9 per part. The second alternative would increase fixed costs by $19,500 and incur variable costs of $7 per part.

(Round answers to 0 decimal places, e.g. 125.)

Level of volume

First alternatives:

Second alternatives:

(in units)

Question 2: Over what relevant ranges of volume is each alternative optimal?

1. For demand under units, purchase the part

2. For demand between and units, adopt Alternative 1

3. For demand over units, adopt Alternative 2

Question 3: At a level of output of 3,350 units, which alternative is most profitable?