A manufacturing company needs to know whether to produce components for a Bird Feeder in-house or buy the components from a fabricator. To make the components in-house, the company needs to buy an injection molding machine, which costs $9,000. The company expects to produce 10,000 units per year. The following estimates have been made: Fixed cost per year Variable cost per part Make $9,000 $6.45 Buy. $0 $7.20 a. What is the break-even point? b. If the number of units produced is 10,000, which option is cheaper: Make or Buy? Explain why. b. If the number of units produced is increased to 12,500, which option is cheaper: Make or Buy? Explain why.

A manufacturing company needs to know whether to produce components for a Bird Feeder in-house or buy the components from a fabricator. To make the components in-house, the company needs to buy an injection molding machine, which costs $9,000. The company expects to produce 10,000 units per year. The following estimates have been made: Fixed cost per year Variable cost per part Make $9,000 $6.45 Buy. $0 $7.20 a. What is the break-even point? b. If the number of units produced is 10,000, which option is cheaper: Make or Buy? Explain why. b. If the number of units produced is increased to 12,500, which option is cheaper: Make or Buy? Explain why.

EBK HEALTH ECONOMICS AND POLICY

7th Edition

ISBN:9781337668279

Author:Henderson

Publisher:Henderson

Chapter4: Economic Evaluation In Health Care

Section: Chapter Questions

Problem 7QAP

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Question

A manufacturing company needs to know whether to produce components for a Bird
Feeder in-house or buy the components from a fabricator. To make the components
in-house, the company needs to buy an injection molding machine, which costs
$9,000. The company expects to produce 10,000 units per year. The following
estimates have been made:
Fixed cost per year
Variable cost per part
Make
$9,000
$6.45
Buy.
$0
$7.20
a. What is the break-even point?
b. If the number of units produced is 10,000, which option is cheaper: Make or Buy?
Explain why.
b. If the number of units produced is increased to 12,500, which option is cheaper:
Make or Buy? Explain why.

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