Use the following scenario to answer the questions below.
A company must decide if it will make or buy an item it needs.The company can make the item for $10 / unit,but must spend $15,000 per year in tooling to do so.An outside firm has quoted a total price of $12 / unit to supply the quantity required.
-Refer to the instruction above.Which alternative should be selected if annual requirements are 5,000 units?

Question

Quizplus · Accepted Answer

If the company makes the item, the cost would be:
Cost to make = (5,000 units x $10/unit) + $15,000 tooling cost per year = $65,000 per year
If the company buys the item, the cost would be:
Cost to buy = 5,000 units x $12/unit = $60,000 per year
Therefore, it is more cost-effective for the company to buy the item from the outside firm.

Use the Following Scenario to Answer the Questions Below