Question 17 1 pts ACME Industries has the opportunity to produce plastic packagi

Question

Question 17 1 pts ACME Industries has the opportunity to produce plastic packaging cases that it currently purchases at $0.52 each. The annual demand for these cases is 37,500 units. If ACME produces the case, it must renovate an existing work area that will add $4,200 annually to the company's mortgage payment and lease an injection/molding machine that will add an additional annual fixed cost of $5,400. The variable costs associated with the labor, materials, and overhead are $0.31 per case. What is the indifference point in this make/buy decision? (Round to the closest whole number) v [ Choose ] Make Buy 45,714 cases $21,225. $19,500 19,500 cases $23,771 21,225 cases. What is the total cost at that indifference point? Use your case number from above Given the demand estimate, should ACME make or buy the cases?

Explanation / Answer

17)

Total cost = Fixed cost + (Variable cost * Quantity)

Purchasing cost = 0.52*Q

Making cost = 4200 + 5400 + 0.31Q = 9600 + 0.31Q

Indifference point is the point where the total cost will be equal

0.52Q = 9600 + 0.31Q

Q = 45714 units

Total cost = 0.52*45714 = $23771

We calculate the total costs for make or buy at Q = 37500

Make total cost = 9600 + 0.31*37500 = $21225

Buy total cost = 0.52*37500 = 19500

ACME should buy

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