Each year,Mother Company purchases 8,000 units of a part that it needs for production of its product.The supplier notified Mother Company that a price increase will take effect shortly,which will bring the price of the part to $25 per part.Mother Company is considering the use of idle facilities to produce the part.The annual production costs to produce the needed 8,000 parts are as follows:
The idle facilities could also be rented out at an annual rent of $99,000.All the fixed indirect production costs are avoidable.
Required:
Determine if Mother Company should buy the part or produce it internally.

Question

Each year,Mother Company purchases 8,000 units of a part that it needs for production of its product.The supplier notified Mother Company that a price increase will take effect shortly,which will bring the price of the part to $25 per part.Mother Company is considering the use of idle facilities to produce the part.The annual production costs to produce the needed 8,000 parts are as follows:
  The idle facilities could also be rented out at an annual rent of $99,000.All the fixed indirect production costs are avoidable.
Required:
Determine if Mother Company should buy the part or produce it internally.

Quizplus · Accepted Answer

The Answer of Each year,Mother Company purchases 8,000 units of a part that it needs for production of its product.The supplier notified Mother Company that a price increase will take effect shortly,which will bring the price of the part to $25 per part.Mother Company is considering the use of idle facilities to produce the part.The annual production costs to produce the needed 8,000 parts are as follows:
  The idle facilities could also be rented out at an annual rent of $99,000.All the fixed indirect production costs are avoidable.
Required:
Determine if Mother Company should buy the part or produce it internally.

Each Year,Mother Company Purchases 8,000 Units of a Part That