The Green Machine Manufacturing Company has the option to make or buy a componen

Question

The Green Machine Manufacturing Company has the option to make or buy a component part for one of its lawnmowers. The annual requirement is 35,000 units. A supplier is able to supply the parts for $13.00 per piece. Green Machine estimates that it will cost $1,000 to prepare the contract with the supplier. To make the parts in-house, Green Machine must invest $80,000 in capital equipment. They estimate it will cost $10.90 per piece to produce the part in-house. Carry all calculations out to two decimal places. Question 22 3.13 pts What is the breakeven quantity? O Less than or equal to 35,000 Greater than 35,000 but less than or equal to 36,000 O Greater than 36,000 but less than or equal to 37,000 Greater than 37,000 but less than or equal to 38,000 Greater than 38,000 Question 23 3.13 pts What is the total cost at the breakeven point? Less than or equal to $480,000 O Greater than $480,000 but less than or equal to $485,000 Greater than $485,000 but less than or equal to $490,000 O Greater than $490,000

Explanation / Answer

Solution :

At Break Even Quantity Q

Sourcing Cost = In-house Production Cost

( FC + VC ) for sourcing = ( FC + VC ) In-house Production

(1000 + 13 * Q) = (80,000 + 10.9*Q)

2.1*Q = 79000

Q = 37619.05

Cost = FC + VC = 1000 + 13* 37619.05 = 490,047.62

Question : 22 : Option D : Greater than 37000 but less than equal to 38000

Question : 23 : Option D : Greater than 490,000

Question : 24 : Option A : buy the product as Break Even Quantity is greater than 35000

Question : 25 : Option B : Greater than 5000 but less than or equal to 5500

Cost of buying for Q = 35000

Cost = 1000 + 35000*13 = 456,000

Cost for Inhouse Production for Q = 35,000

Cost = 80,000 + 35,000 * 10.9 = 461500

Savings = 461500 - 456000 = 5500

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