Waterways has discovered that a small fitting it now manufactures at a unit cost of $1.00 could be bought elsewhere for $0.81 per unit. Waterways has unit fixed manufacturing costs of $0.20 that cannot be eliminated by buying this unit. Waterways needs 465,000 of these units each year. If Waterways decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company. Waterways uses approximately 400 of these units each year. The cost of the unit is $12.33. To aid in the production of this unit, Waterways would need to purchase a new machine at a cost of $2,344, and the unit cost of producing the units would be $9.40. Without considering the possibility of making the timing unit, evaluate whether Waterways should buy or continue to make the small fitting. The company should make the fitting. Incremental cost / (savings) will be 4,650 What is Waterways’ opportunity cost if it chooses to buy the small fitting and start manufacturing the timing unit? The opportunity cost will be...
Waterways has discovered that a small fitting it now manufactures at a unit cost of $1.00 could be bought elsewhere for $0.81 per unit. Waterways has unit fixed
If Waterways decides to buy rather than produce the small fitting, it can devote the machinery and labor to making a timing unit it now buys from another company. Waterways uses approximately 400 of these units each year. The cost of the unit is $12.33. To aid in the production of this unit, Waterways would need to purchase a new machine at a cost of $2,344, and the unit cost of producing the units would be $9.40.
Without considering the possibility of making the timing unit, evaluate whether Waterways should buy or continue to make the small fitting.
| The company should make the fitting. Incremental cost / (savings) will be 4,650 |
What is Waterways’ opportunity cost if it chooses to buy the small fitting and start manufacturing the timing unit?
The opportunity cost will be...
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
