X Company currently buys 8,000 units of a part each year from a supplier for $7.
ID: 2574644 • Letter: X
Question
X Company currently buys 8,000 units of a part each year from a supplier for $7.70 each, but it is considering making the part instead. In order to make the part, X Company will have to buy equipment that will cost $150,000. The equipment will last for 6 years, at which time it will have zero disposal value. X Company estimates that it will cost $32,985 a year to make the 8,000 units What is the approximate rate of return if X Company makes the part instead of buying it from the supplier? Submit Answer Tries 0/5 Communication Blocked Send FeedbackExplanation / Answer
Cost of buying ........................8000 * 7.70 = 61600
Cost of making ................... (given) 32985
Savings ....................................................... 28615
(-) Depreciation = 150000 / 6 .................. 25000
Net profit ................................................... 3615
Rate of return on Investment = 3615 / 150000 * 100 = 2.41 % ....................final answer
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