A company is currently using a supplier to make required components. The supplier changes an annual setup cost of $5,000 regardless of the number of partsthe company purchases in a single year. In addition to this annual setup fee, the supplier uses the following pricing scheme:# of units$/unit1- 100$1,000 each101 - 500$800 each501 - 750$600 each751 or more$500 eachThe company is now exploring the possibility of producing the same component in-house. The company expects to need more than 750 units per year for thenext 5 years. The following information describes their in-house production solution:The annual Capital Recover & Return for the needed equipment = $300,000 per yearMaterial Cost per unit = $250Annual Operation and Maintenance Costs = $100,000Annual Labor Costs = $150,000Annual Overhead Costs = $50,000Question: What is the Breakeven Quantity for this Make / Buy Decision?

The break-even quantity is that quantity at which firm total revenue is equal to the total cost. It…

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Question: What is the Breakeven Quantity for this Make / Buy Decision?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

A company is currently using a supplier to make required components. The supplier changes an annual setup cost of $5,000 regardless of the number of parts
the company purchases in a single year. In addition to this annual setup fee, the supplier uses the following pricing scheme:
# of units
$/unit
1- 100
$1,000 each
101 - 500
$800 each
501 - 750
$600 each
751 or more
$500 each
The company is now exploring the possibility of producing the same component in-house. The company expects to need more than 750 units per year for the
next 5 years. The following information describes their in-house production solution:
The annual Capital Recover & Return for the needed equipment = $300,000 per year
Material Cost per unit = $250
Annual Operation and Maintenance Costs = $100,000
Annual Labor Costs = $150,000
Annual Overhead Costs = $50,000
Question: What is the Breakeven Quantity for this Make / Buy Decision?

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