A manufacturer has a choice of purchasing and installing a heat- treating oven or having the heat treating done by an outside supplier. For the in- house treatment the fixed costs are $28,000 with a variable cost of $10. To purchase outside, the variable costs are $17 per unit.
What is the cost equalization point. Should the company have the heat treating done outside if the annual volume is 3,000 units? 5,000 units?

Question

Quizplus · Accepted Answer

The Answer is CEP is at 4,000 units. For 3,000 units the company should purchase outside at a cost of $17 per unit. For a quantity of 5,000 units, the in- house production is cheaper at
$15 per unit.

A Manufacturer Has a Choice of Purchasing and Installing a Heat-