The operations manager at Sebago Manufacturing is considering three proposals fo

Question

The operations manager at Sebago Manufacturing is considering three proposals for supplying a critical component for its new line of electric watercraft. Proposal one is to purchase the component, proposal two is make the component in-house using rebuilt equipment, and proposal three is to purchase new, highly automated equipment. The costs associated with Click the icon to view the costs associated with each proposal Proposal one will provide the lowest annual cost if between and components are required annually. (Enter your responses as whole numbers.)

Explanation / Answer

Proposol 1 will provide lowest cost:

Breakeven between proposal 1 and proposal 2 = Fixed cost of proposal 2/(Variable cost of 1 - VC of 2)

= 100,000/(25.50 - 21.50)

= 25000 units

Hence Proposol 1 will provide lowest cost if between 0 and 25000 units.

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