Use this scenario to answer the following questions.
A company must decide if it will make or buy an item it needs. The company can make the item for $10 per unit, but must invest $15,000 in tooling to achieve that capability. Alex Rogo has quoted a total price of $12 per unit to supply the quantity required (assume their fixed costs are included in the quoted price).
-Refer to the instruction above. Which alternative should be selected if annual requirements are 5,000 units?
A) Make
B) Buy
C) Either Make or Buy; costs are the same for either option at 5,000 units.
D) Can't be determined with information given

Question

Quizplus · Accepted Answer

If the company makes the item, it would cost $10 x 5,000 + $15,000 = $65,000 per year. If the company buys the item from Alex Rogo, it would cost $12 x 5,000 = $60,000 per year. Therefore, it is cheaper to buy the item from Alex Rogo.

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