Spacely Sprockets, Inc. usually pays $1,000 for a million flanges, which it uses as inputs in the manufacture of sprockets. It also spends an average of $20 per million flanges looking for manufacturers and negotiating contracts. Spacely can make its own flanges at a cost of $980 per million. Given these costs, we can conclude that Spacely should:

Question

​Spacely Sprockets, Inc. usually pays $1,000 for a million flanges, which it uses as inputs in the manufacture of sprockets. It also spends an average of $20 per million flanges looking for manufacturers and negotiating contracts. Spacely can make its own flanges at a cost of $980 per million. Given these costs, we can conclude that Spacely should:

Quizplus · Accepted Answer

Since Spacely can produce its own flanges at a cost of $980 per million, it would be more cost-effective for the company to start producing its own flanges instead of paying $1,000 per million to purchase them. Even when accounting for the additional $20 per million in costs to search for manufacturers and negotiate contracts, it would still be cheaper to produce the flanges in-house. Therefore, the best choice for Spacely would be to start manufacturing its own flanges.

​Spacely Sprockets, Inc

Spacely Sprockets, Inc