Simplex Computer Company must decide whether to make or buy some of its components. The costs of producing 20,000 cables for its computers are as follows. Instead of making the cables at an average cost of $2.50 ($50,000 / 20,000), the company has an opportunity to buy the cables at $2.30 per unit. If the company purchases the cables, all the variable costs and one-fourth of the fixed costs will be eliminated.
a. Prepare an analysis showing whether the company should make or buy the cables. Based on your analysis, would you recommend that Simplex continue to make the cables or should the company buy the cables? Show all computations.
b.Would your answer be different if the released productive capacity will generate additional income of $5,000? Show all computations.

Question

Simplex Computer Company must decide whether to make or buy some of its components. The costs of producing 20,000 cables for its computers are as follows.  Instead of making the cables at an average cost of $2.50 ($50,000 / 20,000), the company has an opportunity to buy the cables at $2.30 per unit. If the company purchases the cables, all the variable costs and one-fourth of the fixed costs will be eliminated. 
a. Prepare an analysis showing whether the company should make or buy the cables. Based on your analysis, would you recommend that Simplex continue to make the cables or should the company buy the cables? Show all computations.
b.Would your answer be different if the released productive capacity will generate additional income of $5,000? Show all computations.

Quizplus · Accepted Answer

The Answer of Simplex Computer Company must decide whether to make or buy some of its components. The costs of producing 20,000 cables for its computers are as follows.  Instead of making the cables at an average cost of $2.50 ($50,000 / 20,000), the company has an opportunity to buy the cables at $2.30 per unit. If the company purchases the cables, all the variable costs and one-fourth of the fixed costs will be eliminated. 
a. Prepare an analysis showing whether the company should make or buy the cables. Based on your analysis, would you recommend that Simplex continue to make the cables or should the company buy the cables? Show all computations.
b.Would your answer be different if the released productive capacity will generate additional income of $5,000? Show all computations.

Simplex Computer Company Must Decide Whether to Make or Buy