Scenario 2.6
You currently purchase a part used in your production process from an outside supplier, and have decided to begin making this part in-house. You have two equipment options for moving production in-house: special-purpose equipment and general-purpose equipment. Cost information for these two options is as follows:

-Use Scenario 2.6 to solve this riddle. For what range of output is the General-Purpose Equipment the low-cost option?
A) 0-30,000 units per year
B) 30,000 or more units per year
C) 40,000 or more units per year
D) 0-40,000 units per year

Question

Scenario 2.6
You currently purchase a part used in your production process from an outside supplier, and have decided to begin making this part in-house. You have two equipment options for moving production in-house: special-purpose equipment and general-purpose equipment. Cost information for these two options is as follows:
 
-Use Scenario 2.6 to solve this riddle. For what range of output is the General-Purpose Equipment the low-cost option?
A) 0-30,000 units per year 
B) 30,000 or more units per year 
C) 40,000 or more units per year 
D) 0-40,000 units per year

Quizplus · Accepted Answer

General-Purpose Equipment tends to have lower fixed costs but higher variable costs compared to Special-Purpose Equipment. Therefore, it is more cost-effective for lower production volumes. Without specific details from Scenario 2.6, the general principle is that for lower ranges of output, such as 0-30,000 units per year, General-Purpose Equipment would be the low-cost option due to its cost structure favoring smaller scale production.

Scenario 2.6 You Currently Purchase a Part Used in Your Production Process