Answered Essay: Question 2 3.33 pts The Green Machine Manufacturing Company has the option to make or buya

Questions 2, 3 & 4. Thanks!

Question 2 3.33 pts The Green Machine Manufacturing Company has the option to make or buya component part for one of its lawnmowers. The annual requirement is 35,000 units. A supplier is able to supply the parts for $13.00 per piece. Green Machine estimates that it will cost $1,000 to prepare the contract with the supplier. To make the parts in-house, Green Machine must invest $80,000 in capital equipment. They estimate it will cost $10.90 per piece to produce the part in-house. Carry all calculations out to two decimal places What is the total cost at the breakeven point? O <480,000 >480,000 but <= 485,000 >485,000 but <= 490,000 >490,000 畢ㄧ D e@@ DOLL
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Question 2 3.33 pts The Green Machine Manufacturing Company has the option to make or buya component part for one of its lawnmowers. The annual requirement is 35,000 units. A supplier is able to supply the parts for $13.00 per piece. Green Machine estimates that it will cost $1,000 to prepare the contract with the supplier. To make the parts in-house, Green Machine must invest $80,000 in capital equipment. They estimate it will cost $10.90 per piece to produce the part in-house. Carry all calculations out to two decimal places What is the total cost at the breakeven point? O 480,000 but 485,000 but 490,000 畢ㄧ D e@@ DOLL

Expert Answer

Answer

2) At breakeven, Total cost from both options is equal

Let units be x

Cost of outsourcing = Unit*Price + Contract cost = 13x + 1000

Cost of manufacturing = Machine cost + Unit*Price = 80,000 + 10.9*x

Equating the two:

13x + 1000 = 80000 + 10.9x

2.1x = 79000

x = 37619.05 units

Cost = 13*37619.05 + 1000 = 490,047.62

Ans: >490,000

3) If x = 35000

Cost of outsourcing = 35000*13 + 1000 = 456,000

Cost of manufacturing = 80000 + 35000*10.9 = 461,500

Hence, should buy the part

Ans: Buy the part

4) Cost saving is difference between the two cost = 461500-456000 = 5500

Ans: >5000 but <= 5500

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