The time duration that the Company P will take to repay the amount required to expand the business. Introduction: A classic problem faced by a firm is ‘make or buy decision’.The firm can either purchase the product or can produce it internally at a cheaper unit cost. However, while choosing the later option the firm requires new investment for expanding its production capability.

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Chapter 1.11, Problem 40P

a.

Summary Introduction

To determine: The time duration that the Company P will take to repay the amount required to expand the business.

Introduction: A classic problem faced by a firm is ‘make or buy decision’.The firm can either purchase the product or can produce it internally at a cheaper unit cost. However, while choosing the later option the firm requires new investment for expanding its production capability.

b.

Summary Introduction

To determine: The time duration taken by Company P to pay back the amount spent on expansion if the sales expect an increase by 15%.

Introduction: The ‘make or buy decision’ problem, faced by a firm clarifies essential trade off on investment and economies of scale. When the quantity of sales goes on increasing, the production cost of per unit falls.

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