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What volume of activity will reliable enterprises favour buy

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Reference no: EM132691905

Reliable Enterprises makes circuit boards with the following cost structure based on a volume of 30,000 units from last year :

Direct Materials $5
Direct Labour $4

  • Material cost are expected to increase 2% next year. Labour costs are expected to increase 5% next year. Variable overhead is estimated to be half of direct labour costs.
  • An offer has been received from PartsCo to supply 25,000 units at $17 per unit, that Reliable estimates it will need next year.
  • Reliable is currently leasing factory equipment $180,000 per year to manufacture their circuit boards.
  • If they break their lease there is a $12,000 termenation penalty.

Required:

Question 1: From a financial perspective, determine whether Reliable EnTERPRISES SHOULD ACCEPT THE OUTSOURCING OFFER.

Question 2: At what volume of activity in units will Reliable Enterprise be indifferent to making or buying the circuit board?

Question 3: Over what volume of activity will reliable Enterprises favour buying the circuit board?

Reference no: EM132691905

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