XM Company currently buys 15,000 units of a part used to manufacture its product at $39 per unit. The supplier recently informed XM Company that a 20 percent increase will take effect next year. XM has some additional space and could produce the units for the following per-unit costs (based on 15,000 units):
If XM purchases the units from the supplier, XM can rent out the plant for $22,500 per year.
Should XM Company buy the part externally or make it internally? Use differential analysis to support your answer.

Question

XM Company currently buys 15,000 units of a part used to manufacture its product at $39 per unit. The supplier recently informed XM Company that a 20 percent increase will take effect next year. XM has some additional space and could produce the units for the following per-unit costs (based on 15,000 units):
  If XM purchases the units from the supplier, XM can rent out the plant for $22,500 per year.
Should XM Company buy the part externally or make it internally? Use differential analysis to support your answer.

Quizplus · Accepted Answer

The Answer of XM Company currently buys 15,000 units of a part used to manufacture its product at $39 per unit. The supplier recently informed XM Company that a 20 percent increase will take effect next year. XM has some additional space and could produce the units for the following per-unit costs (based on 15,000 units):
  If XM purchases the units from the supplier, XM can rent out the plant for $22,500 per year.
Should XM Company buy the part externally or make it internally? Use differential analysis to support your answer.

XM Company Currently Buys 15,000 Units of a Part Used