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 mystery. At an annual requirement of 40,000 units, what does the company save per year by selecting the lower-cost option?
A) $150,000
B) $300,000
C) $50,000
D) $40,000

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 mystery. At an annual requirement of 40,000 units, what does the company save per year by selecting the lower-cost option?
A) $150,000 
B) $300,000 
C) $50,000 
D) $40,000

Quizplus · Accepted Answer

The lower-cost option is the general-purpose equipment, which costs $200,000. The cost savings per unit is $4.50 ($12.00 - $7.50). Therefore, the cost savings for 40,000 units is:

40,000 units x $4.50 per unit = $180,000

Since the cost of the special-purpose equipment is $400,000, the company would save:

$400,000 - $200,000 = $200,000

So, the company saves $180,000 per year by selecting the lower-cost option of general-purpose equipment instead of purchasing from the outside supplier.

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