Question 1 3 pts The Green Machine Manufacturing Company has the option to make

Question

Question 1 3 pts The Green Machine Manufacturing Company has the option to make or buy a component part for one of its lawnmowers. The annual requirement is 25,000 units. A supplier is able to supply the parts for $12.25 per piece. Green Machine estimates that it will cost $700 to prepare the contract with the supplier. To make the parts in-house, Green Machine must invest S100,000 in capital equipment. They estimate it will cost $9.00 per piece to produce the part in-house. Carry all calculations out to two decimal places. What is the breakeven quantity? O Less than or equal to 30,000 O Greater than 30,000 but less than or equal to 35,000 O Greater than 35000 but less than or equal to 40,000 Greater than 40,000 but less than or equal to 45,000 Greater than 45,000

Explanation / Answer

To buy from the supplier fixed cost(FC) = $700 and variable cost(VC) = $12.25 per piece

To make in-house, fixed cost(FC) = $100000 and variable cost(VC) = $9 per piece

The break even quantity is the quantity at which both the process will have the equal total cost

Suppose the break even quantity is Q

Total cost to buy = Total cost to make

=> FC + Q(VC) = FC + Q(VC)

=> 700 + 12.25Q = 100000 + 9Q

=> 12.25Q - 9Q = 100000 - 700

=> 3.25Q = 99300

=> Q = 99300/3.25

=> Q = 30554

So the break even quantity is 30554

So the answer is greater than 30000 but less than or equal to 35000

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