Suppose that a manufacturer can produce a part for $8.00 with a fixed cost of $6 comma 000. Alternately, the manufacturer could contract with a supplier in Asia to purchase the part at a cost of $10.00 , which includes transportation. a. If the anticipated production volume is 1,300 units, compute the total cost of manufacturing and the total cost of outsourcing. b. What is the best decision?

Question

Business

Tommy Blanchard

20 July, 13:20

Suppose that a manufacturer can produce a part for $8.00 with a fixed cost of $6 comma 000. Alternately, the manufacturer could contract with a supplier in Asia to purchase the part at a cost of $10.00 , which includes transportation. a. If the anticipated production volume is 1,300 units, compute the total cost of manufacturing and the total cost of outsourcing. b. What is the best decision?

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Esperanza Murray · Answer 1

Instructions are listed below.

Explanation:

Giving the following information:

A manufacturer can produce a part for $8.00 with a fixed cost of $6,000.

A supplier in Asia offers the part for $10.00 , which includes transportation.

The anticipated production volume is 1,300 units.

First, we need to calculate the total cost of making the part in-house. We will calculate based on two situations:

Fixed costs are avoidable

Total cost = variable cost + fixed costs = 8*1,300 + 6,000 = 16,400

Fixed costs are unavoidable:

Total cost = total variable cost = 8*1,300 = $10,400

Now, we calculate the total cost of purchasing:

Purchase = 10*1,300 = $13,000

Based on this information, the purchase is more convenient if at least $3,400 of the fixed costs are avoidable.