A firm’s manager must decide whether to make or buy a certain item used in the production of vending machines. Making the item would involve annual lease costs of $150,000. Cost and volume estimates are as follows:Make BuyAnnual fixed cost $150,000 None Variable cost/unit $ 60 $ 80 Annual volume (units) 12,000 12,000 a. Given these numbers, should the firm buy or make this item?b. There is a possibility that volume could change in the future. At what volume would the managerbe indifferent between making and buying?
Breakeven Analysis
Break Even Analysis is a term used in business, cost accounting and economics. It refers to a point where the total cost incurred becomes equal to the total revenue earned. Break Even Analysis determines the number of units to be sold to earn the revenue required to cover the total costs. Total cost is a sum total of fixed and variable costs.
Process analysis
The term process analysis can be defined as breakdown of production process into different phases that converts inputs into output. A series of routine activities are incorporated using organizational resources with a view to achieve operational excellence.
A firm’s manager must decide whether to make or buy a certain item used in the production of vending machines. Making the item would involve annual lease costs of $150,000. Cost and volume estimates are as follows:
Make Buy
Annual fixed cost $150,000 None
Variable cost/unit $ 60 $ 80
Annual volume (units) 12,000 12,000
a. Given these numbers, should the firm buy or make this item?
b. There is a possibility that volume could change in the future. At what volume would the manager
be indifferent between making and buying?
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