A U.S. motorcycle manufacturer has the option of either making the gas tank in their newly designed motorcycle, or subcontracting it to a manufacturer from Sinagpore. The manufacturer expects to produce 1,000 units per year. Costs for the two options are:
$\begin{array}{|l|c|c|}
\hline \text { Source } & \text { Fixed Cost } & \text { Variable Cost } \
\hline \text { Make in-house } & \$ 15,000 & \$ 21.50 \
\hline \text { Buy from Singapore } & \$ 0 & \$ 29.00 \
\hline
\end{array}$
-The volume they are indifferent regarding the decision to make or buy is _____ units.
A) less than or equal to 2,000
B) more than 2,000 but less than or equal to 4,000
C) more than 4,000 but less than or equal to 6,000
D) more than 6,000 but less than or equal to 8,000
E) more than 8,000.

Question

A U.S. motorcycle manufacturer has the option of either making the gas tank in their newly designed motorcycle, or subcontracting it to a manufacturer from Sinagpore. The manufacturer expects to produce 1,000 units per year. Costs for the two options are:
 $\begin{array}{|l|c|c|}
\hline \text { Source } & \text { Fixed Cost } & \text { Variable Cost } \
\hline \text { Make in-house } & \$ 15,000 & \$ 21.50 \
\hline \text { Buy from Singapore } & \$ 0 & \$ 29.00 \
\hline
\end{array}$
-The volume they are indifferent regarding the decision to make or buy is _____ units.
A) less than or equal to 2,000
B) more than 2,000 but less than or equal to 4,000
C) more than 4,000 but less than or equal to 6,000
D) more than 6,000 but less than or equal to 8,000
E) more than 8,000.

Quizplus · Accepted Answer

To find the indifference point, we set the total costs of both options equal to each other and solve for the quantity (Q):$$15,000 + 21.50Q = 29.00Q$$$$7.50Q = 15,000$$$$Q = 2,000$$Thus, at 2,000 units, the manufacturer is indifferent between making in-house or buying from Singapore. Since the question asks for the volume they are indifferent at, any volume less than or equal to 2,000 would make them indifferent or lean towards making in-house due to the fixed costs being spread over more units, making the per-unit cost lower or equal at that point.

A US Motorcycle Manufacturer Has the Option of Either Making the the Gas